Fitch Rates $16.7MM Del Valle ISD, Texas GO Bonds 'A' Underlying.

AUSTIN, Texas -- Fitch Ratings assigns an underlying rating of 'A' to the Del Valle Independent School District, Texas (the district) $16.7 million unlimited tax school building bonds, series 2005, and affirms the underlying 'A' rating on the district's $87.1 million of outstanding unlimited tax school bonds. The series 2005 bonds are scheduled to sell via negotiation on July 18 to a syndicate led by SAMCO Capital Markets. The Rating Outlook is Stable.

The bonds constitute direct and voted obligations of the district, payable from a continuing direct annual ad valorem tax levied, without legal limit as to rate or amount, on all taxable property within the district. Proceeds will be used to construct and equip school buildings and pay costs of issuance.

The underlying 'A' rating reflects favorable reserve levels and above-average amortization. The rating also incorporates the district's high debt levels and additional borrowing needs attributable to moderately high enrollment growth, as well as tax base concentration by the district's two largest taxpayers, FASL LLC (FASL) and Advanced Micro Devices (AMD), which constitute 16% of the tax base. The possibility of AMD relocating to a new office campus that would house 2,000 of its 3,000 local workers and selling its flash memory business, FASL, is a potential credit risk. However, increased commercial and residential development expected to occur in conjunction with the construction of State Highway 30 through the district mitigates some concern.

Financial performance has been favorable. The district added $1.1 million to its general fund balance in fiscal 2004, increasing reserves to more than 20% (76 days) of operating expenditures and transfers out, slightly below the informal 90-day policy. Break-even results are expected for fiscal 2005, and a modest operating deficit is projected for fiscal 2006. The district has levied an operations and maintenance (O&M) tax at the state-mandated $1.50/$100 taxable assessed valuation (TAV) ceiling since fiscal 2003.

The district has benefited from the Austin area economy, which until recently experienced rapid growth that outpaced that of other major Texas cities, the state, and the nation. Increased commercial and residential development, primarily resulting from proximity to the City of Austin and Austin-Bergstrom International Airport (ABIA), as well as availability of affordable housing led to very strong taxable gains in recent years. However, the most recent downturn in the economy led to contraction in the Austin area high technology sector and a reduction in taxable value of the two largest district taxpayers, FASL and AMD, causing slight declines in TAV since fiscal 2003. Affordable housing prices and low interest rates have continued to spur residential development, helping to offset declines in commercial values.

Enrollment has historically grown at a higher average annual rate than the population. Future enrollment is projected to remain strong, though more moderate, at around 2% annually. Current enrollment is approximately 7,800 students. TAV growth has slowed from double-digit rates to an average annual rate of 5% since fiscal 1999 as modest declines in TAV were realized in the past three years. While tax base concentration among the top 10 taxpayers is high at 25%, it is improved from prior year levels. Total concentration should continue to decline from prior levels as economic diversification continues.

Debt levels are high, though the district has no authorized but unissued general obligation debt remaining following this issuance. Based on the outcome of a long-range planning committee to convene this fall, officials anticipate the possibility of seeking additional voter authorization to address campuswide needs resulting from increased enrollment. Amortization is slightly above average.

Fitch's rating definitions are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.