Fitch Rates Needville ISD, Texas' $22MM ULT Schoolhouse Bonds 'A+'.

AUSTIN, Texas -- Fitch Ratings has assigned an 'A+' underlying rating to the Needville Independent School District, Texas (the district) $22 million unlimited tax (ULT) schoolhouse bonds, series 2009, and assigning an underlying 'A+' rating on the district's approximately $35 million in outstanding parity bonds. The bonds are scheduled to price the week of April 13th via negotiation. The Rating Outlook is Stable.

The bonds are payable and secured from unlimited property tax levies against all taxable property within the district. Bonds proceeds will be used for the construction of a new high school, renovations to the middle school and existing high school, and technology upgrades.

The 'A+' underlying rating reflects the district's consistently strong financial results, taxable assessed valuation (TAV) growth, solid reserve levels, and high debt burden. Debt levels have increased substantially during the past year due to the issuance of bonds under the 2007 authorization, including the current offering, for construction of the new high school. Fitch expects steady increases in TAV will offset some of the increased debt. Maintenance of solid fund balance reserve levels will be important to preserve the current rating level.

The district is located approximately 14 miles south of Richmond in Fort Bend County, Texas. Richmond is located southwest of Sugarland, which is southwest suburban Houston; downtown Houston is a 30-40 minute drive from Needville. District enrollment totals about 2,600, which is down (1.8%) from the prior year, but has been growing at an average of 0.7% annually since fiscal 2004. The district expects continued residential and some commercial development in the near term, with residential development continuing in parts of the district. The district experienced a fire in April 2007 at its high school, which destroyed the main building and the science building. The new high school will replace this school, and the existing high school will be converted into a new middle school for the district.

Debt levels are very high, and principal amortization is slow. This is primarily due to the 2007 bond authorization for the construction of the new high school, renovations to the middle school, and existing high school, and technology improvements. This $60 million authorization, which was approved in May 2007, is expected to be sufficient to meet the district's capital needs for the next five to 10 years, during which time Fitch expects the district debt ratios to decline. With the current bonds, direct debt is 7.4% of TAV and $3,631 per capita including state support for debt service. Including overlapping debt, these levels rise to 8.5% of TAV and $4,149 per capita. Overall debt ratios include overlapping debt of approximately $6.3 million, composed mostly of the debt of Fort Bend County.

Despite the high debt levels, financial performance remains favorable. Fund balances and liquidity levels are healthy and the district has experienced operating surpluses four of the past five years. Fiscal 2008 resulted in a surplus of $1.4 million, and an unreserved general fund balance of $5.8 million, or a very solid 30.6% of spending. In fiscal 2009, the district expects a $400,000-$500,000 surplus, which will improve general fund balance levels further.

The district has a diverse tax base, with some oil and gas exposure. Wealth levels are moderate with a market value per capita of about $49,000. The per capita income of Fort Bend County is above both the state and national averages.

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