Fitch Rates Fullerton Joint Union High School District, California, $24.4MM COPS 'AA-'.

SAN FRANCISCO -- Fitch assigns an 'AA-' rating to $24.4 million Fullerton Joint Union High School District (Orange and Los Angeles Counties, California) 2007 certificates of participation (COPs). Fitch also assigns an 'AA-' rating to the district's $1.5 million in outstanding refunding COPs that are secured by the same lease. In addition, Fitch affirms the 'AA' rating on the district's $62.5 million in outstanding general obligation (GO) bonds. The Rating Outlook is Stable.

The COPs are expected to sell via negotiation led by George K. Baum & Company during the week of March 12, 2007. Proceeds of the issuance will partially finance the construction of a new campus for the district's continuation and alternative high schools. Proceeds will also finance construction contingency costs, a reserve fund, information technology projects, and debt issuance costs.

The 'AA-' rating reflects the district's solid financial condition, sound management practices, low debt burden, and diverse economic base. Consistently healthy unreserved general fund balances provide the district with significant financial flexibility. In addition, the district maintains a sizable cash position. Fitch notes, however, that the district's amortization of its GO bond and COP debt is very slow.

The majority of the district is located in Orange County, along with a small portion in Los Angeles County. The district services the cities of Fullerton, La Habra, and Buena Park, along with several neighboring communities and unincorporated portions of both counties. The district's population is estimated to be approximately 260,000. Fullerton City, the single largest city within the district, has experienced steady increases in its labor force and employment opportunities, ensuring a full recovery from the sizable dip in labor force and employment opportunities it experienced fiscal 2000. The local unemployment rate remains consistently below state and national levels, benefiting from Orange County's diverse economic base. The district's tax base has experienced strong average annual gains of 10% between fiscals 2001 and 2007. The top 10 taxpayers comprised only 3.2% of total 2006 assessed valuation (AV), thereby indicating low taxpayer concentration.

The $24.4 million 2007 COPs are secured by lease payments for the Fullerton Union High School, which has a 2006 appraised value of $47.4 million, and its 31-acre site, valued at an additional $53.3 million. The proposed lease transaction has a strong legal structure. Lease features include the district's covenant to budget and appropriate sufficiently for lease rental payments, a requirement for rental interruption insurance, and the use of an essential district property as security for the COPs.

The district's financial position is strong, with flexibility derived from good management, ample reserves and cash balances, and stable student enrollment. The unreserved fund balance for fiscal 2006 was $11.2 million, or 8.4% of total expenditures, transfers out, and other uses, in line with the previous two fiscal years. In addition, the district maintains a prudent 'Focus on the Future' special reserve fund that had an ending balance of $10.5 million in fiscal 2006, providing ample additional financial flexibility.

The district's debt level is low, with direct debt at $349 per capita or 0.4% of AV. Likewise, overall debt is a modest $1,530 per capita or 1.7% of AV. Payout is below average, with only 25% of GO bond and COP debt retired in 10 years.

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