Correction: Fitch Assigns Underlying `AA-' To Cypress-Fairbanks ISD's GO Bonds.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 16, 2000

Cypress-Fairbanks Independent School District, TX's $100 million unlimited tax schoolhouse bonds, series 2000 are expected to be rated `AAA' upon approval by the Texas Education Agency. The district has applied for and is expected to receive a guarantee provided by the Texas Permanent School Fund, whose claims-paying ability is rated `AAA'. In addition, Fitch has assigned an initial underlying rating of `AA-' to the bonds, which are expected to sell on a competitive basis on July 10. Dated July 1, 2000, the bonds mature serially Feb. 15, 2002-2022. Bonds maturing on or after Feb. 15, 2011 are subject to redemption, in whole or part and at the district's option, on Feb. 15, 2010 at par plus accrued interest to the date fixed for redemption.

The underlying `AA-' rating on the bonds reflects the district's solid financial performance, steadily growing tax base, and manageable, although relatively high, debt load. The district continues to record steady enrollment gains and is approaching its operating tax cap. Given these pressures, additional credit consideration is given based on the district's demonstrated ability and ongoing commitment to strong fiscal controls, conservative financial practices and policies, and proactive planning.

Located in west and northwest Harris County, the district encompasses 186 square miles, and includes a small portion of the city of Houston, plus Cypress, Fairbanks, and Jersey Village. Student gains have averaged almost 5% per year, with enrollment just over 60,000 in fiscal 2000, making the district the seventh largest in the state. With only 45% - 50% of the district developed, district demographers project growth of 2,000 students per year over the medium term. Tax base growth has outpaced enrollment gains, averaging 7.7% over the past five years, increasing by over $1 billion annually since fiscal 1998, with a $1.5 billion jump projected for fiscal 2001.

Despite ongoing growth pressures, financial operations are strong, marked by steady increases in reserves and aided by conservative fiscal management. The fiscal 1999 total general fund balance equaled 22.8% of expenditures, and has not been less than 18% since fiscal 1995. For the close of fiscal 2000, the district projects a slight increase to reserves, excluding funds from the sale of land. Sizable annual gains in assessed valuations have enabled the district to remain slightly below the operational tax cap limit. Currently, the district's operation and maintenance tax rate is at about 98% of the limit. However, repeal of the 20% local homestead exemption would provide added taxing margin, and requires only majority school board support.

In conjunction with our default study and revised general obligation bond guidelines, Fitch is placing greater emphasis on management practices as predictors of credit performance. Additional credit comfort is provided by the district's strong fiscal controls and planning tools. The district maintains a 25% fund balance policy, develops a five-year maintenance plan, provides pay-as-you go financing, and issues monthly financial reports. Although the multi-year forecast projects a $15 million operating deficit, assumptions used to develop the forecast are generally conservative; the forecast is a planning tool and officials project better results. In addition, administrative costs per student are the lowest in the region, while teacher's salaries are very competitive. Academically, Cypress-Fairbanks is the largest district ever to receive a `recognized' rating from the state, with nearly half of the district's schools receiving an impressive `exemplary' rating.

The district's debt to market value, even after adjusting for state support, is relatively high at 8.1%, attributable to growth generated issues by the district and its many overlapping entities. The current offering is the second installment of a $264 million bond authorization approved by 81% of voters in October 1998. The authorization will fund the construction of eight new school over the next four years, plus renovation of existing schools, and the purchase of school sites for future growth. Officials expect to issue the remaining portion of the authorization in 2002. The debt service portion of the tax rate, which dropped 5 cents due to state support, is projected to increase by 5 cents over the next several years, although projections assume a more modest 6% annual tax base growth and no additional state support. Savings from the existing authorization are expected to be sufficient to fund the construction of an additional elementary school. Despite projected population and tax base growth, debt ratios will likely remain high due to planned borrowings. The district expects to return to the voters within the next three years for another bond election, tentatively totaling $250 million-$300 million.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.