DALLAS — Economic growth across the Texas led Standard & Poor’s to upgrade the credit of four Lone Star issuers.
Both the El Paso County Hospital District and the South Dallas suburb of DeSoto received an upgrade to AA-minus from A-plus. The rating agency also raised the underlying credit of Fort Bend Municipal Utility District No. 21 to A-minus from BBB and the Leonard Independent School District to A from BBB-plus.
Upgrades indicate the credit strength of an issuer is improving and often lead to lower costs of issuance.
Analysts said Leonard ISD’s “consistently strong financial position, bolstered by significant state support for operations” led to the two-notch upgrade. State aid accounted for $5.5 million, or “a sizable 77%” of the the North Texas school system’s total general fund revenue for fiscal 2007, according to analysts.
Standard & Poor’s said the upgrade to A reflects low debt levels, a rapid amortization schedule, passage of a rollback tax-rate increase to fund salary increases and capital projects, and “a relatively isolated economic base, anchored by agricultural activities” with low wealth levels.
The taxable assessed value of the small, rural district averaged 9.1% annual growth the past three years to $104 million for 2007. Analysts said officials attribute the gains to reappraisals rather than new development. The city of Leonard is about 60 miles northeast of Dallas near the Red River and the Oklahoma border. The school district serves nearly 900 students at four campuses.
On the other side of Dallas, the growing city of DeSoto warranted an upgrade due to continuing economic expansion and a “historical ability to maintain solid reserves during significant growth pressure,” according to analysts.
The city plans to offer about $4.9 million of general obligation bonds and $805,000 of certificates of obligation next week. Southwest Securities Inc. is lead manager for the negotiated sale, and First Southwest Co. is the financial adviser to the district.
Camelia Browder, the city’s finance director, said officials have been waiting on the upgrade for a few years.
“We’re just thrilled to finally receive the upgrade to the AA level,” she said. “We felt for some time that we have a strong management team and a strong citizenry here and we’re hopeful the upgrade might mean a little less on insurance rates for the debt, as well as a little less on the interest rate, which means saving some money for our citizens.”
She said the city’s “seen a lot of residential growth the past few years, but this year it’s been split between residential and commercial, which is very encouraging.”
DeSoto’s estimated 2006 population of nearly 47,600 is up more than 25% since 2000.
Analysts said single-family residential assessed value accounts for about two-thirds of the city’s total property tax base, which averaged 8% annual growth the past five years to $3.03 billion for fiscal 2008.
The city is only about half built out, so management expects growth to continue, according to Standard & Poor’s.
Browder said proceeds from next week’s sale will fund a new roof for city hall, expansions and improvements to a few major thoroughfares, and the city’s portion of a mixed-use development in downtown.
Analysts said the outlook is stable and the upgrade applies to $92.6 million of debt outstanding, including next week’s issue. DeSoto will have about $3.7 million of authorized by unissued debt following this sale with no plans to issue again this year.
Fitch Ratings assigned a AA-minus rating to next week’s sale by DeSoto.
Out in West Texas, strong economic expansion that’s diversifying the tax base coupled with improving operating margins and liquidity led Standard & Poor’s to boost the credit of the El Paso County Hospital District to the AA level.
The outlook is stable and the higher rating applies to nearly $152 million of debt outstanding, as well as a coming issue of $157 million of GO and refunding bonds.
Analysts also said growth in the areas is “expected to outpace historical levels due to added troops at Fort Bliss.”
The Army base is set to add more than 30,000 troops over the next several years under the the Pentagon’s Base Realignment and Closure initiative. Standard & Poor’s, citing Army calculations, said up to 37,000 soldiers and more than 50,000 family members may be reassigned to El Paso by 2013.
Analysts said the assessed valuation of the city should expand at a similar pace. The fiscal 2008 assessed value of the hospital district of $31.3 billion is up nearly $10 billion since 2004.
Standard & Poor’s also raised Fort Bend Municipal Utility District No. 21 to A-minus from BBB, citing the completion of development within the district, consistent assessed-value growth, and a historically stable property tax base.
The higher rating also applies to the district’s competitive sale of $4 million of unlimited-tax and contract revenue bonds set for next Wednesday, April 9.
RBC Capital Markets is the financial adviser to the district, which has a completely commercial tax base.
“We believe that Sugar Land Business Park will remain vibrant while continuing to grow and diversify, that the district’s financial position will remain healthy, and that additional capital needs should be minimal,” said credit analyst Kate Choban.
The district’s taxable assessed value increased “a sizable 64% over the past five years to $451 million in fiscal 2008.” The business park is about 20 miles southwest of downtown Houston.
Analysts said mitigating credit factors include the entirely commercial property-tax base with high taxpayer concentration and elevated debt burden.
Moody’s Investors Service rates the district’s underlying credit at Baa1.
