Fitch Rates DeSoto ISD, Texas ULT Bonds 'A+' Underlying.

AUSTIN, Texas -- Fitch Ratings assigns an 'A+' rating to DeSoto Independent School District, Texas' (DeSoto ISD) $38.1 million unlimited tax school building and refunding bonds, series 2007. Fitch also affirms an 'A+' underlying rating to the district's approximately $128 million in outstanding unlimited tax bonds. The series 2007 bonds are scheduled for a negotiated sale the week of May 28 via a syndicate led by RBC Capital Markets. The district has applied for bond insurance and the series 2007 bonds are expected to be rated 'AAA' at closing. The Rating Outlook is Stable.

The bonds are direct obligations of the district, payable from and secured by an unlimited ad valorem tax levied against all taxable property within the district. Proceeds will be used to construct and equip school buildings, purchase necessary sites, refund a portion of the district's outstanding debt, and pay costs of issuance.

The underlying 'A+' rating reflects the DeSoto ISD's trend of healthy reserves, a growing tax base, and above-average area wealth levels. The rating also reflects the district's high debt levels with additional borrowing planned, below-average principal amortization, and ongoing operating and capital pressures associated with growth.

The prospect for continued development appears promising, given the district's proximity to the diverse Dallas-Fort Worth economy, the surrounding major highways, and available land. Current financial performance and expected tax base growth suggest the district will be able to maintain its solid financial profile satisfactorily over the near term.

DeSoto ISD is located approximately 15 miles southwest of downtown Dallas on Interstate Highway 35 East in a suburban residential area that encompasses 23 square miles. Serving primarily the cities of DeSoto and Glenn Heights, enrollment is currently estimated at slightly more than 8,600 students and has grown by an annual average of nearly 4% since 2002. Given the pace of development, officials expect current enrollment to almost double at full build-out over the next 10-15 years. Tax base growth continues to outpace student enrollment gains at slightly less than 9% annually over the past five years. Most residents commute to work throughout the Dallas-Fort Worth metroplex. Recently completed improvements to Interstate Highway 35E will spur additional commercial/retail development.

Fiscal 2006 continued the district's six-year trend of adding to general fund balance, bringing the total to $12.2 million or 24.3% of expenditures and transfers out. Liquidity levels remained solid as well. The district expects to add to or maintain general fund balance by the close of fiscal 2007, despite operating pressures that include competition with area districts for teacher recruitment. The district has historically outperformed budget projections through cost containment measures.

District debt levels are high and are expected to remain so considering growth pressures, even after factoring in state support for a portion of existing debt service. The new money portion of the current offering is the second installment of a $116 million authorization, the largest in the district's history, which was approved by 55% of the voters in September 2005.

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