DALLAS - After finally obtaining the go-ahead from a Texas district court judge to issue debt from a $1.35 billion authorization, the Dallas Independent School District now confronts a dysfunctional credit market and also faces a tight deadline to qualify the bonds for the state's triple-A rated Permanent School Fund guarantee.
Officials have until early December to get to market in order to get the PSF backing after receiving the "expedited declaratory judgment" they sought.
Issuance from the $1.35 billion authorization passed in May has been held up since July. That's when a group of parents and community leaders filed a civil-rights lawsuit alleging the district failed to use proceeds from previous bond sales for promised projects in the city's predominately minority southern sector.
The DISD counter-sued last month, citing a state statute that prevents lawsuits from blocking securities sales indefinitely. Last week, Texas District Court Judge Martin Hoffman ruled in favor of the state's second-largest school system, validating the election and the bonds. Hoffman also said the plaintiffs must post a $1 million surety bond by the end of this week if they decide to appeal.
The ruling awaits approval from the state attorney general, which is expected this week.
Plaintiffs also have filed a suit in federal court.
A lawyer who filed similar suits in the past labeled as draconian the state statute - known as the Expedited Declaratory Judgment Act or Public Securities Declaratory Judgment Act - invoked by the district judge.
Ty Clevenger represented the plaintiffs that brought similar suits against the Waller Independent School District and Houston Independent School District in the past year and calls the state law unconstitutional. He said that "in a way, it's factually lawless" for a state court to render a ruling while the federal court case is still pending.
After lengthy delays, both the Waller and Houston bond elections were validated by the state attorney general and the school districts brought debt to market.
But the market volatility of the past month makes it hard to foresee exactly when the DISD may actually start issuing any of these bonds. The district applied to the Texas Education Agency in August to have any bonds sales enhanced by the PSF, and that application expires December 12.
Co-chief financial officer Steve Korby said the district plans "to proceed with the selection of underwriters and be prepared to sell the bonds when the market conditions warrant the sale."
He said officials hoped to issue the first tranche of the bond package in August, but now will get bonds to market as soon as possible.
Officials estimate the delay may lead to increased construction costs of about $66 million.
After a few weeks of virtually no bond sales in Texas, a couple of deals priced last week, including a $100 million issue by Frisco Independent School District.
Yields on the bonds, which are backed by the PSF, ranged from 4.95% with a 5% coupon in 2017, to 6.25% with a 6% coupon in 2038.
The DISD bond package approved earlier this year calls for 15 new schools, 12 additions, and renovations to 200 of district's 229 schools, most of which are more than 50 years old.
The district, which serves about 160,000 students and is the 12 largest in the country, carries underlying ratings of AA from Fitch Ratings and Standard & Poor's.
Moody's Investors Service, which rates the district Aa3, recently revised its outlook to negative from stable, citing "heightened concerns regarding the district's financial management and reporting abilities" after officials said a budget shortfall will result in a reduction to general-fund reserves.
DISD has about $1.54 billion of debt outstanding.
