Amend: Fitch Rates Frisco ISD, Texas $100MM GOs 'AAA' PSF/'A' Underlying.

AUSTIN, Texas -- (This is a correction for a previous release issued yesterday. It amends the sale date for the new bonds in the first paragraph)

Fitch Ratings assigns an 'AAA' rating to Frisco Independent School District, Texas' (the district) $100 million unlimited tax school building bonds, series 2007A, based on the guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying rating of 'A' to the series 2007A bonds, which are expected to sell competitively on Sept. 5. Fitch also affirms the underlying 'A' rating to the district's approximately $802.9 million unlimited tax school building bonds outstanding. The Rating Outlook is Stable.

The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. The series 2007A bonds are further secured by the PSF guarantee. Proceeds will be used to construct, renovate, and equip school facilities, and to pay issuance costs.

The underlying 'A' rating reflects the district's satisfactory financial profile, historically conservative and stable financial management, impressive tax assessed valuation (TAV) growth, and the strength and diversity of the regional economy. The district is consistently the fastest growing in the state, leading to substantial operating and capital pressures and very high debt ratios. Although general fund reserve levels recently declined, they remain satisfactory for the current rating category. Moreover, those reserve levels are expected to increase in the next two years with better than anticipated results for fiscal 2007 and a change in the reporting period in fiscal 2008.

Located approximately 20 miles north of Dallas, area transportation improvements and housing affordability have led to accelerated population and enrollment growth over the past decade. The district's estimated population surged from approximately 6,700 in 1990 to over 96,000 in 2007. The district reportedly has been the fastest growing district in the state for the past nine consecutive years. Enrollment for fiscal 2007 is up over 17% from the prior year, growing at a very high average annual rate of 23% since fiscal 2000. District projections call for a student count of almost 39,000 by 2010, up from its current enrollment of 27,522.

The district recorded huge annual increases in TAV of 40%-50% between fiscal years 2000 and 2002. TAV growth slowed somewhat between fiscal years 2003 and 2007 but still reflects significant gains, averaging over 20% annually. For fiscal 2008, the district's TAV grew by more than $2 billion, or another 21%, over the prior year's level. The trend of strong TAV growth will likely continue given ongoing development that will be further facilitated by planned road expansions, as well as the availability of undeveloped land.

Given the rapid tax base expansion, the wealth per student ratio exceeds the wealth transfer threshold, which requires the redistribution of a portion of local tax revenues. In fiscal 2003, intergovernmental payments tripled from $6 million the prior year and continued to escalate reaching $29 million by fiscal 2006. The district benefited from the new state funding formula that increased the state's level of funding and reduced local property taxes. Because the wealth transfer payments are based on local revenue from property taxes collected, the resulting wealth transfer for fiscal 2007 was reduced to $16 million. For fiscal 2008, this intergovernmental payment is expected to further decline to $6 million, but is expected to increase in fiscal 2009 as TAV and tax levies continue to grow.

Historically, financial performance has been sound despite rapid enrollment growth and wealth transfer payments, with TAV increases and solid budget execution generally producing strong revenue gains and favorable year-end results. After posting a large $2.4 million deficit in fiscal 2005, the district recovered in fiscal 2006, ending the year with a $1 million surplus, but with somewhat low reserve levels of just under one month, or 7.2% of operating expenditures and transfers out. For comparison purposes, as recent as year-end fiscal 2002 the general fund balance represented as much as 21% of operating expenses and transfers out. In response to the decline in reserve levels, the district informally adopted a 15% general fund balance target to be achieved over the next several years, with approximately $7.4 million expected to be added to fund balance for the close of fiscal 2007. Moreover, the district is planning to change its reporting period to a June 30 fiscal year to better coincide with the school year beginning fiscal 2008. This change may enable the district to achieve its fund balance goal since the year will only have 10 months (summer accruals will be deferred to the next fiscal year).

Fitch believes that economic and enrollment growth in the district will continue to parallel each other. In the past, conservative fiscal management practices combined with strong TAV growth have enabled the district to maintain favorable reserve levels, all while opening new schools. Five new schools just opened in the fall of 2007. Given these operating pressures, the maintenance of adequate reserve levels remains an important credit consideration.

As is the case with other fast-growing Texas school districts, direct and overall debt levels are high, and principal amortization is slow. Debt ratios will likely remain significant given the May 2006 voter support for a $798 million bond measure, among the largest bond measures ever approved in the state. The district has consistently received strong community support for growth-related capital programs, which is a credit strength. The 2006 authorization will fund the construction of 19 schools, support facilities, site acquisition, and technology and equipment purchases. After this issuance, the district will have about $798.5 million in bond authorization. The district anticipates returning to market with another $100 million bond sale in February 2008.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.