Fitch Rates Lewisville ISD, Texas' Series 2007 Rfdg Bonds 'AAA'.

AUSTIN, Texas -- Fitch Ratings assigns an 'AAA' rating to Lewisville Independent School District, Texas' (the district) $86.3 million unlimited tax refunding bonds, series 2007. The 'AAA' rating is based on the guarantee provided by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying 'AA' rating to the series 2007 bonds and affirms the underlying 'AA' rating on the district's approximately $659.2 million (net of refunded bonds) outstanding unlimited tax bonds. The Rating Outlook is Stable.

The bonds are expected to price on March 29 via negotiation to a syndicate led by RBC Capital Markets. Payable from an unlimited ad valorem tax levied on all taxable property within the district, bond proceeds will be used to refund certain outstanding bonds for savings and to pay issuance costs.

The 'AA' rating reflects the district's success in planning for and managing enrollment growth and new facilities while recording consistently strong financial results. The district has generated a significant buildup in operating reserves in a financially challenging environment; this trend reflects the sound, conservative fiscal management that is a credit strength for the district. A new finance methodology for Texas public schools introduces an additional challenge that district administrators must address, along with its moderating tax base growth, declining state financial support and expanding enrollment.

Located about 20 miles northwest of Dallas in Denton County, the district serves 10 growing residential communities. As the district's service area has matured, both enrollment gains and growth in taxable assessed valuation (TAV) have moderated. Enrollment growth rates have moderated to 3%-4% annually since fiscal 2004 compared with over 5% annual growth in the prior decade. Although the growth rate has slowed somewhat, projections still indicate that between 1,700 and 2,000 new students will enroll in the district annually. District facilities include 39 elementary schools, 14 middle schools, six high schools and two alternative learning centers. The district currently serves a student population of nearly 49,000 and district officials estimate reaching build-out in 10-12 years, with approximately 65,000 students. While TAV gains have also moderated, the district's fiscal 2007 TAV is solid at $18.9 billion, and the preliminary fiscal 2008 TAV suggests another $1 billion increase in value. Since fiscal 2002, TAV has grown at a compound annual rate of 7%, down markedly from the 15% average annual increases recorded over the previous five fiscal years.

While slowing enrollment growth has offered a measure of relief, the district nonetheless has faced mounting spending pressures while contending with declining state financial assistance and slowing TAV growth. Despite these constraints, financial performance has been consistently strong. The district has reported operating surpluses in the each of the past eight fiscal years, building substantial reserves. Fiscal 2006 ended with better than expected results as increased revenues from several sources and a recapture payment received from the state's school finance system enabled the district to record an operating surplus of more than $13 million and an unreserved, undesignated general fund balance in excess of $110 million, or 35% of spending.

Fiscal 2007 will is the first year for Texas school districts to operate under a new state school finance structure. To comply with the new funding program, Lewisville ISD compressed its operations tax rate from the prior state cap of $1.50 per $100 TAV to $1.33 for fiscal 2007. Additionally, due to an increase in the wealth level for equalization purposes from $305,000 per student to $319,500, state education officials have informed Lewisville ISD that it is not classified as a 'property-rich' district and is not required to make wealth transfer payments for fiscal 2007. District officials adopted a balanced budget for fiscal 2007 after implementing budget cuts totaling about $6 million and levying at the compressed operations and maintenance tax rate of $1.33. Beyond fiscal 2007, the district anticipates using general fund reserves to balance operations; however, the district has adopted a formal fund balance policy requiring the maintenance of a minimum of $45 million in general fund balance reserves, equivalent to 14.4% of fiscal 2006 spending levels.

The current offering is a refunding for an estimated present value savings of $4 million. The district has $87.7 million remaining authorization of the nearly $200 million in debt that was approved by an overwhelming margin at an election held in October 2005. The projects approved include a new middle school, technology improvements, maintenance projects, and various renovations and additions. In an effort to achieve cost savings from significant construction inflationary costs, officials have accelerated the bond program. The district expects to sell the remaining authorization in one to two installments in the next two years and plans to return to the voters in 2008 for another authorization to address additional capital needs. The district's debt service tax rate for fiscal 2007 was increased four cents to $0.31 per $100 of TAV and officials anticipate that this rate will increase by another five cents over the next several fiscal years due to the approved bond package.

Typical of fast growing school districts, principal amortization is below average at 44% for the next 10 years. Direct debt ratios are above average at $2,636 per capita and 3.95% of TAV, and are expected to increase with additional capital needs associated with enrollment growth. Overall debt ratios are high at $4,853 per capita and 7.27% of TAV.

Expanding service and manufacturing development continues to diversify the district's economic base, which historically has been primarily residential. Unemployment rates in Denton County are consistently below regional, state, and national averages and local wealth measures exceed state and national levels.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.