Fitch Rates Connecticut's Regional School District No. 5, $18.7MM GOs 'AA'; Stable Outlook.

NEW YORK -- Fitch Ratings assigns an 'AA' long-term rating to the $16,000,000 Regional School District Number 5, CT (the district) general obligation (GO) bonds series B, approximately $2.7 million GO refunding bonds series C, and an 'F1+' short-term rating to $16,175,000 GO bond anticipation notes (BANs). The bonds and BANs are scheduled for competitive sale on Nov. 15. The series B bonds mature serially July 15, 2008-2025, with semiannual interest payments on Jan. 15 and July 15, commencing July 15, 2006. The series C bonds mature serially March 1, 2008-2018, with semi-annual interest payments on March 1 and Sept. 1, commencing March 1, 2006. The BANs mature on Nov. 29, 2006. Concurrently, Fitch affirms the 'AA' rating on the district's $35.6 million outstanding GO bonds and the 'F1+' rating on the district's $8.2 million outstanding BANs. The Rating Outlook is Stable.

The 'AA' long-term rating reflects the district's high wealth levels, consistently strong tax collections, and low unemployment rates. Debt levels have risen following recent bond and BAN issuances authorized for district-wide facilities improvement, but should remain manageable relative to the district's resources. The primary credit concern centers on the fact that district operations are structured to maintain relatively slim fund balances, thus relying on the three underlying towns to cover any shortfalls. After the towns promptly provided a supplemental tax assessment to cover a general fund deficit incurred in fiscal 2001, financial operations improved significantly, and reserve and liquidity levels remain adequate.

The 'F1+' short-term rating reflects not only the underlying credit characteristics of the district but also its demonstrated access to the short-term market as evidenced by several high-quality bids on its last note sale in January 2005.

The district is located north and west of New Haven and serves grades 7-12 through one senior high school and two middle schools. The member towns of Bethany, Orange, and Woodbridge are largely residential and demonstrate high wealth levels by all measures. While population was relatively stable through 1990, it has grown moderately over the past decade to 28,310 estimated for 2004. Enrollment growth has been moderate and officials project a slight decline through 2010. The district's workforce is largely employed in professional and executive positions, and unemployment rates are consistently well below state and national averages.

Sufficient financial flexibility is demonstrated by audited fiscal 2004 results showing a fund balance at 5.6% of spending and a satisfactory cash position. Preliminary results for fiscal 2005 indicate a modest general fund surplus, and effective cost controls are aided by a regional six-member board of finance - the only one of its kind in the state. The fiscal 2006 budget represents a manageable 6.6% increase over the fiscal 2005 budget and will be funded proportionately by the three member towns based on student enrollment. The town of Orange is the largest, contributing 45.6% of total budget funding.

At $2,151 per capita and 2.0% of taxable grand list, net direct debt levels remain moderate. Debt levels have risen following recent GO bond and BAN issuances authorized by a $75 million bond referendum for district-wide facilities improvement, of which the series B bonds represent the second long-term issuance. Although debt levels are expected to rise in tandem with full issuance of the authorization by fiscal 2008, officials anticipate the district's share should be significantly below the total project costs with the benefit of state grants. Despite an above-average principal amortization rate of 55.7% in 10 years, debt service remains affordable at 10.6% of spending.

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