Fitch Rates Midlothian ISD, Texas' $50.2MM ULT Bonds 'A-' Underlying.

AUSTIN, Texas -- Fitch Ratings has assigned an underlying 'A-' rating to the $50.2 million unlimited tax school building and refunding bonds of Midlothian Independent School District, Texas (the district). Fitch also affirms the 'A-' underlying rating on the district's $103.1 million of unlimited tax general obligations outstanding. The bonds are scheduled to sell on July 14 via negotiation to a syndicate managed by First Southwest Company. The Rating Outlook is Stable.

The bonds are secured by the proceeds of an ad valorem tax, without legal limit as to rate or amount, against all taxable property within the district. Bond proceeds will be used to construct and equip school buildings and to advance refund a portion of the district's outstanding bonds for debt service savings.

The 'A-' rating is based on the district's strong tax base growth and improved financial reserves. Credit risks include individual and sector tax base concentration and a high debt burden. As affordable housing in nearby areas has reached capacity, enrollment in the district has accelerated due to the availability of reasonably priced land for residential development. Therefore, the district is experiencing and projecting both operating and capital pressures arising from this enrollment growth.

Located about 30 minutes south of the Dallas-Fort Worth metroplex, residential development in the district has been spurred by the construction of transportation links facilitating access to these employment centers. Housing starts in the past three years have been strong, and further platting is expected to provide 9,000 lots for development over the next 15 years. Taxable assessed valuation (TAV) has averaged 13% annually for the past five years, while enrollment growth averaged about 7%. Enrollment growth is anticipated to continue at similar or slightly higher levels for the near term as land remains affordable within the district and residential and commercial development pushes southward from the metroplex.

Although the district has faced operational and capital pressures due to enrollment growth, financial performance has improved. General fund reserves increased from just over 1% of expenditures and transfers out in fiscal 2000 to a healthy 18% in fiscal 2004, despite a change in fiscal year-end from Aug. 31 to June 30 for fiscal 2004, which district officials report resulted in an artificially deflated fiscal 2004 result. A $2.5 million surplus is anticipated for the end of fiscal 2005, and the fiscal 2006 budget is balanced. The district is at the state limitation for the operation and maintenance (O&M) levy at $1.50 per $100 TAV, as are more than half of the school districts in Texas.

Direct and overall debt levels are high at $5,500 and $8,800 per capita, respectively, and 7% and 12% of fiscal 2005 TAV. The district also benefits from a tax increment reinvestment zone (TIRZ) with a fiscal 2005 incremental taxable assessed value of $443 million. The district's interest and sinking (I&S) fund levy, as well as a small portion of the O&M levy, applies to taxpayers within the zone. However, the property values within the district are not considered in state calculations of property wealth per student. Including the TIRZ value, the district's direct debt drops to 6% of TAV. Located within the zone are cement, steel, and electric power producers, which are also the areas of tax base concentration. While the top 10 taxpayers include three cement production plants, a natural gas utility, and a steel production plant and constitute a very high 57% of TAV, this tax base concentration has decreased from levels higher than 70% as recently as two years ago.

Principal amortization is slow, with approximately 20% retired within 10 years. After this offering, the district will have no remaining authorized but unissued debt. The district could possibly seek voter approval to issue additional general obligation bonds within 12 to 24 months.

Fitch's rating definitions are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.