Friendswood ISD to Offer $99.5M Today Following S&P Upgrade

DALLAS — The Friendswood Independent School District plans to sell all the bonds authorized by voters in November today following an upgrade of its underlying credit rating to A-plus from A from Standard & Poor’s.

The district about 23 miles south of downtown Houston is bringing $99.5 million of unlimited-tax schoolhouse bonds to market through a negotiated sale led by UBS Securities LLC.

The underwriting syndicate includes RBC Capital Markets, Southwest Securities Inc., Edward Jones, Wachovia Bank NA, and Coastal Securities Inc.

First Southwest Co. is the financial adviser to the district. Vinson & Elkins LLP serves as bond counsel.

The issue was initially expected to come to market next week, but Terrell Palmer, senior vice president at First Southwest, said the decision to sell today stems from the overall level of volume set to price next week.

Palmer said there will be a priority period for local retail investment that may result in about 5% to 10% of the total issuance, but the majority of the debt will be purchased by institutional investors. While he said it was hard to gauge the exact benefits of the upgrade, he added that it should help.

Upgrades indicate the credit quality of an issuer is improving and often lead to lower interest rates and lower costs of issuance.

“There’s been a flight to quality lately regarding the credit crunch,” Palmer said. “So anything that differentiates this sale from similar issues should be helpful for the district. Overall they’re a really good district … high test scores, mature community that’s almost built out, and just a great, great district.”

The bonds also come to market with the triple-A wrap provided by the state’s Permanent School Fund.

Standard & Poor’s said the upgrade reflects the district’s “significantly improved financial position and steady property tax base growth.” The higher rating also applies to about $22 million of debt outstanding.

Friendswood ISD’s primarily residential tax base averaged 10% annual growth the past five years to $1.96 billion for fiscal 2008, according to analysts, who expect the assessed value to continue to grow at a similar pace.

Officials increased the general fund balance each of the last two years to about $9 million at the end of fiscal 2007 through operating surpluses. Management projects another gain of roughly $500,000 for the current fiscal year due to conservative budgeting, according to analysts.

“It is our belief that district officials will maintain the district’s solid finances while successfully addressing the potentially significant capital needs associated with the district’s aging facilities and deferred maintenance,” said Standard & Poor’s credit analyst Kate Choban. “The district’s high debt levels currently constrain the rating, but debt levels should decline given the district’s limited capital needs.”

The suburban district operates two elementary schools, two intermediate schools, one junior high, and one high school with a total enrollment of 5,850.

Proceeds from the bonds will fund a new junior high school with an adjacent sixth-grade center, a natatorium, and renovations to the other campuses. The old junior high school will be converted to an early childhood center.

Officials expect a significant increase in enrollment when construction of an up to 1,500-home subdivision starts within the next two years, according to analysts. That development also will push the district closer to complete residential build out.

Moody’s Investors Service assigned its A1 underlying rating to the sale and affirmed the rating on the district’s debt outstanding.

 

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