Fitch Rates Leander ISD, Texas $120MM 2007 ULT Bonds 'AAA' PSF / 'A+' Underlying.

AUSTIN, Texas -- Fitch Ratings assigns its 'AAA' rating to Leander Independent School District, Texas' $120.2 million unlimited tax school building and refunding bonds, series 2007. The 'AAA' rating is based on the guaranty by the Texas Permanent School Fund. In addition, Fitch assigns an 'A+ underlying rating to the series 2007 bonds and affirms the district's $617 million in outstanding unlimited tax bonds at 'A+'. The Rating Outlook is Stable.

The bonds are scheduled to be sold on or about May 24 via negotiation through a syndicate led by First Southwest Co. Payment for the bonds is provided by an ad valorem tax levied, without legal limitation as to rate or amount, against all taxable property within the district. Bond proceeds will be used for the construction and equipping of school buildings, purchase of land, and to pay costs of issuance.

The underlying 'A+' rating of Leander Independent School District's (Leander ISD) unlimited tax bonds reflects its history of solid financial performance while contending with pressures associated with rapid enrollment growth. This success has been the product of sound management and planning practices and a conservative budgeting philosophy. Leander ISD continues to attract new students at a fairly rapid pace. Currently totaling 24,400-plus students, enrollment has grown by more than 9% annually for the past five years. Despite increased spending pressures associated with higher enrollment, the district continues to add to its healthy reserve levels. However, growth-generated debt issuances keep debt ratios at very high levels. In addition, efforts to minimize the debt service tax rate and meet the Texas attorney general's $0.50 interest and sinking (I&S) fund tax rate threshold test have resulted in a slow amortization rate.

Largely residential in character, Leander ISD serves a nearly 200-square-mile area in southwestern Williamson County and western Travis County. The availability of affordable housing continues to attract buyers from all parts of central Texas. As a result, demographic projections suggest enrollment will more than double to about 54,000 by fiscal year 2016. The district's taxable assessed valuation (TAV) growth rate slowed somewhat in fiscal years 2004 and 2005; however, spurred by strong residential construction, TAV growth expanded rapidly by 9% and 27% in fiscal years 2006 and 2007, respectively. Preliminary fiscal year 2008 assessments point to a 15% or $1.4 billion gain.

Financial results continue to be impressive, reflecting the conservative nature of the budgeting and planning practices of the district. The district has recorded operating surpluses annually over the past nine fiscal years; another operating surplus is projected for fiscal year 2007. At the close of fiscal year 2006, the unreserved, undesignated general fund balance totaled over $42 million, which represented more than 30% of spending, demonstrating the extent of the district's financial flexibility. In addition, the district recently increased its unreserved, undesignated general fund balance target to 22% from 17%.

District debt levels, as measured on a per capita basis and as a percentage of TAV, are very high. Direct debt is equals $6,235 per capita and 7.5% of TAV. Overall debt ratios also are very high. Amortization is slow, reflecting the use of capital appreciation bonds (CABs) to minimize tax rate impacts and to shift the debt burden to future taxpayers. In addition, the current offering is structured with a 35-year payout to meet the district's capital requirements and the state attorney general's $0.50 test. Debt ratios will likely remain high for some time, given the district's additional borrowing needs.

Approximately $94 million of this issuance represents the second installment of a $286.1 million authorization approved by 59% of the voters in May 2006. The authorization will fund the construction of six new elementary schools and one middle school, school renovations, site acquisitions, and technology needs. This offering also includes a small refunding portion, which is expected to result in net present value savings. The district expects to issue the remaining installment of this authorization in 2008. Based on reasonable tax base assumptions, the I&S tax rate is projected to peak at about $0.37 per $100 TAV, $0.10 less than initially projected due to continued strong tax base growth. Given the anticipated enrollment growth, officials plan to return to the voters as early as 2009 for an additional bond authorization.

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