News Column

Fitch Rates Coppell ISD TX ULT Bonds 'AAA' TX PSF; 'AA+' Underlying

July 16, 2014

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AAA' rating to Coppell Independent School District, Texas' (the district) unlimited tax (ULT) bonds as follows:

--$52.3 million ULT school building bonds, series 2014

The 'AAA' rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch. Fitch also assigns an underlying rating of 'AA+' to the series 2014 bonds.

The bonds are scheduled for negotiated sale the week of July 21. Bond proceeds will be used for facility improvements and to pay issuance costs.

In addition, Fitch also affirms the following ratings:

--$174.8 million in outstanding ULT bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are secured by an unlimited ad valorem tax pledge of the district. In addition, the bonds are secured by the PSF guarantee.

KEY RATING DRIVERS

STRONG FINANCIAL FLEXIBILITY: Conservative fiscal management practices have enabled the district to build healthy financial reserves.

DIVERSE AND GROWING TAV: Solid taxable assessed valuation (TAV) gains reflect home price appreciation and the addition of new properties to the district's diverse and wealthy tax base.

ELEVATED BUT MANAGEABLE DEBT: Overall debt is above average. Carrying costs, including debt service, pension contributions and other post-employment benefits (OPEB), place only a moderate burden on the district's budget and reflect strong state support of pension obligations.

STRONG LOCAL ECONOMY: The district benefits from its location in the broad and diverse economy of the Dallas-Fort Worth (DFW) metro area. Residents have easy access to a large employment market that continues to outperform the nation. Wealth levels are well above state and national averages.

RATING SENSITIVITIES

STRONG FINANCIAL PROFILE: Maintenance of the district's strong financial profile is a key credit mitigant to ongoing state funding uncertainties and wealth transfer provisions.

CREDIT PROFILE

The city of Coppell (the city) is located approximately 18 miles northwest of downtown Dallas. The district serves the city and small portions of the cities of Dallas and Irving in northwest Dallas County with an estimated population of 48,187 in 2013. The district's enrollment levels resumed growth in fiscal 2010, after a couple of years of enrollment declines, to its current level of 11,364.

STRONG LOCAL ECONOMY IN GREATER DALLAS AREA

The district's location in the Dallas Fort Worth (DFW) metropolitan area provides residents with easy access to a large and diverse labor market. The city's unemployment rate as of April 2014 remains below state and national averages at 4.5%, aided by four years of above-average employment growth. Median household income is more than double that of the U.S. average.

The district's tax base is diverse and without concentration. Fiscal 2014 market value per capita of $185,000 reflects appreciating home values and a strong commercial and industrial base. Proximity to interstate 35 and other major highways has attracted big-box warehousing, most recently Amazon's 1 million square foot fulfillment center.

The district conservatively projects a 6% to 8% gain in fiscal 2015 TAV based on very high preliminary values from the appraisal district. The strong TAV growth reflects significant residential and commercial development currently underway throughout the district, including within the North Lake (Cypress Waters) development.

CONSERVATIVE FISCAL MANAGEMENT

The district is considered property wealthy and relies almost entirely on local property taxes. Funding is subject to the state formula and a portion of the district's operations and maintenance (O&M) levy is recaptured by the state for distribution to less wealthy school districts. These payments totaled $18.4 million in fiscal 2013 (19.6% of general fund spending).

Financial performance and reserve levels are very strong despite the large recapture payments associated with the state funding formula. The district posted a $2.5 million (2.6%) net surplus in fiscal 2013, completing the year with $45.8 million in unrestricted general fund reserves (48.7% of spending). Officials anticipate adding an additional $2 million to reserves this fiscal year. The fiscal 2015 budget is structurally balanced with property tax revenues absorbing the costs of the district's new elementary school.

ELEVATED DEBT; ONGOING NEEDS

Fitch expects the district's overall debt, 4.8% of market value, to remain elevated as the district is only about 70% built out. Ample capacity remains under the state's statutory interest and sinking fund (I&S) new issuance cap of $.50 per $100 of TAV. Officials project a peak I&S tax rate of $.29 over the next several years.

Voters authorized a $79.5 million bond program in May 2013 for facility construction, improvements, technology and vehicle needs. The first issuance of $25.35 million funded improvements and construction of a Net-Zero energy elementary school, also designed to be Leed (Leadership in Energy and Environmental Design) certified. The school is scheduled to open next month. Officials report that the Net-Zero elementary school will produce as much energy as it uses.

This series 2014 issuance, the second from the May 2013 bond program, will be used to construct and renovate the high school multi-purpose competition gym/arena and athletic field house. Issuance of $7.2 million in remaining authorization will focus on technology improvements. Beyond that, officials report the potential for a bond election in three to five years to address additional facility needs.

LIMITED PENSION; OPEB OBLIGATIONS

The district's pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). The district's annual contribution to TRS is determined by state law, as is the contribution for the state-run post-employment benefit healthcare plan. Including debt service, pension and OPEB contributions, carrying costs were a moderate 14.7% of fiscal 2013 governmental spending, benefitting from the state's strong support for school district pension funding. However, districts are susceptible to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective fiscal 2015.

TEXAS SCHOOL DISTRICT LITIGATION

In February 2013 a district judge ruled that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system 'inefficient, inequitable, and unsuitable and arbitrarily funds districts at different levels . . ..' The judge also cited inadequate funding and the districts' inability to exercise 'meaningful discretion' in setting tax rates as constitutional flaws in the current system.

The judge agreed to reopen testimony in January 2014 after the Texas legislature restored $4.5 billion in school funding in its 2013 session. The increased funding levels apply to school district budgets in fiscal years 2014 and 2015. The judge will determine if the additional funding affected arguments made during the trial. It is anticipated that the original ruling, if upheld, will ultimately be appealed to the state supreme court.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, and LoanPerformance, Inc.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14 2012.

--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 2012.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=839859

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Rebecca Meyer, +1 512-215-3733

Director

Fitch Ratings, Inc.

111 Congress Ave., Suite 2010

Austin, TX 78701

or

Secondary Analyst

Shane Sellstrom, +1 512-215-3727

Analyst

or

Committee Chairperson

Amy Laskey, +1 212-908-0568

Managing Director

or

Media Relations, New York

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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