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Fitch Rates Clear Creek ISD, TX, ULTs 'AAA' PSF; 'AA+' Underlying; Outlook StableAUSTIN, Texas --(Business Wire)-- Fitch Ratings has assigned an 'AAA' PSF rating and an 'AA+' underlying rating to the following Clear Creek Independent School District, Texas (the district), unlimited tax (ULT) bonds: --$46.045 million ULT refunding bonds, series 2013A; --$138.19 million ULT school building adjustable rate bonds, series 2013B. The 'AAA' rating is based on a guarantee provided by the Texas Permanent School Fund (PSF; bond guarantee program rated 'AAA' by Fitch). The bonds are expected to price via negotiated sale the week of Nov. 18, 2013. Proceeds will be used to finance school renovations and repairs, purchase instructional technology, and construct extracurricular facilities, including a sports stadium. In addition, Fitch affirms the following ratings for the district: --$602.7 million of ULTs. The Rating Outlook is Stable. SECURITY The bonds are secured by revenues from an unlimited tax levied against all taxable property within the district. The PSF guaranty applies to all outstanding series except for series 2005, 2009, 2010 and 2012. KEY RATING DRIVERS SOUND FINANCIAL PROFILE: Prudent planning and cost management support a history of consistent financial results and adequate policy-level reserves. Officials offset state-wide funding losses with cost savings during the fiscal 2012/2013 biennium, enabling continued strong financial performance. STABLE ECONOMY: The district is located in Harris and Galveston counties, benefiting from a diverse economy with prominence in the energy and petrochemical industries. Modest taxable assessed valuation (TAV) gains have returned, fueled mostly by residential development underway in Galveston County. HIGH OVERALL DEBT: Overall debt is high and principal amortization is slow; however, the district's fixed cost burden, including annual debt payments and pension contributions is moderate. ABOVE-AVERAGE DEMOGRAPHIC PROFILE: The district's unemployment rate historically trends below state and national averages; measures of income and wealth exceed those of the state and the U.S. RATING SENSITIVITIES SHIFT IN FUNDAMENTALS: The rating is sensitive to material changes in fundamental credit characteristics, including the district's strong financial management practices. The district's history of reserve adequacy and sound financial management practices indicates expected rating stability. CREDIT PROFILE Clear Creek ISD encompasses 120 square miles and is located midway between Houston and Galveston. The district's main population centers include League City and the Clear Lake area of Houston. DIVERSIFIED HOUSTON ECONOMY The district's tax base is well represented by all segments of the oil & gas industry characteristic of the region, but is diversified with significant presence of the aerospace, other manufacturing, retail trade and health service sectors. Diversity of the local economy tempers the endemic oil & gas price volatility present in the Houston area economy. Substantial downstream energy manufacturing additionally buffers the local economy from oil & gas price declines. Chemical and petroleum/coal products comprise the majority of the region's sizable export market (second largest U.S. export market behind New York according to IHS (News - Alert) Global Insights), supported by a strong multimodal transportation network which includes the Houston Ship Channel (HSC). Located along the HSC is the massive Bayport Industrial Development with 62 industrial plants in operation. The district's largely residential TAV has resumed modest growth, averaging 3% in fiscal years 2013 and 2014, after declining by 2.2% in fiscal 2011 and flattening in fiscal 2012. The top 10 taxpayers comprise a modest 4.8% of the district's $15.8 billion TAV. Although much of the district is mature, undeveloped pockets remain in the 40% represented by Galveston County, where the district anticipates further TAV gains in the next sevral years. STRONG FINANCIAL PERFORMANCE The district's financial performance remains strong despite state aid cuts totaling $13.5 million (12% reduction) and $4 million (4% reduction) in fiscal years 2012 and 2013, respectively. Aided by attrition-based staff reductions, reduced spending, enrollment-based revenue growth, and a one-time $5.9 million EduJob grant, fiscal 2012 posted a net operating surplus of $0.9 million (0.3% of spending), increasing the unrestricted fund balance to $52.9 million (19.1% of spending and transfers out). Notably, these results are net of a large $12.4 million transfer (4.5% of spending) to the capital projects fund for one-time capital outlays. In line with the district's 2-month (16% of spending) fund balance policy, such transfers are made annually from any amounts in excess of the policy level. General fund transfers to the capital projects fund totaled $48 million between fiscal 2007 and fiscal 2011. Additional attrition-based staff reductions and utility cost savings enabled the district to project a $7.5 million net operating surplus for fiscal 2013, $6.5 million of which was transferred to the capital projects fund. The fiscal 2014 budget includes a $5.8 million transfer from the capital projects fund to the general fund, essentially reversing most of the fiscal 2013 transfer due to reduced capital project cost estimates. HIGH OVERALL DEBT BURDEN The district's overall debt (including overlapping debt of municipalities) is high at $7,096 per capita or 8.3% of market value. The current offerings are the first installment of a $367 million bond authorization approved by a high 68% of voters in May 2013. The size of the authorization exceeds Fitch's expectation of $150 million - $300 million. Bond proceeds will fund major school renovations ($182 million), safety, priority repairs, and growth-related facility additions ($89 million), instructional technology ($45 million), and extracurricular facilities, including a new sports stadium ($39 million). The series 2013B adjustable rate issue is structured with an initial five-year term, after which a mandatory tender will put the bonds back to bondholders if not remarketed successfully. In the event of a failed remarketing, bondholders receive a stepped interest rate, capped at 6.5%. As such, the structure does not require a liquidity provider. For the entire 2013 authorization, the maximum I&S tax rate is projected to total $0.41 per $100 of TAV, based on an assumed annual tax base growth projection of 2% which Fitch considers reasonable. The projected tax rate impact leaves sufficient capacity in relation to the statutory rate of $0.50 for new debt issuance. However, debt amortization is slow with 38% of debt scheduled for repayment in the next 10 years. Fitch expects amortization to slow further with full issuance of the recently authorized debt. MODEST PENSION AND OPEB COSTS Some of Fitch's concerns about high debt levels are offset by low long-term liabilities related to pensions. The district participates in the state Teacher Retirement System (TRS), a cost-sharing multiple employer plan for which the state is responsible for the majority of annual payments. Other post-employment benefits (OPEB) are also provided through TRS. The district's annual required contributions for pension and OPEB are determined by state law, and totaled $3.5 million in fiscal 2012, or a low 1.0% of operating expenditures. The district's total carrying cost burden (annual debt service payments, pension and OPEB contributions) represent a manageable 15.5% of fiscal 2012 spending. ABOVE-AVERAGE DEMOGRAPHICS A historically low unemployment rate reflects ready access to the Houston employment market. For League City, a local rate of 5.6% as of July 2013 is improved from the prior year due to 3.2% year-over-year job growth and compares favorably to state (6.7%) and U.S. (7.7%) averages for the same period. The district's poverty rate trails state and national averages; median household income exceeds that of the state and U.S. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria', Aug. 14, 2012; --'U.S. Local Government Tax-Supported Rating Criteria', 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=807813 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 (News - Alert) 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. |
