DALLAS — Fitch Ratings and Standard & Poor’s upgraded the underlying credit of the Clear Creek Independent School District ahead of a new-money and refunding issue, citing continued tax-base expansion and financial stability.
The district, which is about 25 miles south of Houston, sold $95.4 million of unlimited-tax school building and refunding bonds yesterday in a negotiated sale led by Merrill Lynch & Co. About $78.9 million of the issue is new-money with $16.5 million of refunding bonds.
Ryan O’Hara, vice president with RBC Capital Markets, the financial adviser to the school system, said the deal resulted in a true-interest cost of 4.6993% for the district.
The underwriting syndicate also included First Southwest Co., Coastal Securities Inc., Morgan Stanley, UBS Securities LLC, Banc of America Securities LLC, and JPMorgan.
The district serves an enrollment of more than 36,000 students at 39 campuses in League City, the affluent Clear Creek section of southern Harris County, and parts of Galveston County.
Vinson & Elkins LLC is bond counsel.
The bonds came to market with the triple-A wrap provided by the state’s Permanent School Fund.
Last week, Fitch raised its underlying rating on the district to AA from AA-minus, citing “proven financial flexibility with sustained use of substantial cash outlays for capital funding while continuing to maintain solid reserves without the use of a discretionary operating tax levy.”
Analysts said the upgrade also reflects management’s “proactive planning efforts that include multi-year forecasting for operations and facilities.”
The suburban district is adding about 1,000 students a year and officials project a total enrollment of 52,200 by 2020. Officials expect growth to continue led by residential development spurred by local employment at Johnson Space Center and several petrochemical companies, according to analysts.
Standard & Poor’s upgraded the underlying credit to AA from AA-minus due to the “strong expansion and deepening of the district’s economic and tax base.”
Analysts said the “proximity to the diverse Houston metropolitan area” has led the district’s assessed value to more than double the past decade to about $14 billion.
Moody’s Investors Service assigned its Aa3 underlying rating and affirmed the rating on the district’s $627.7 million of debt outstanding, following this week’s sale.
Moody’s said the conservative revenue budgeting led to a fiscal 2007 general fund surplus of about $19 million, most of which was transferred to a capital replacement fund that the district uses to finance its long-range facilities plan.
In May 2007, voters approved the $183 million bond package to build one high school, one intermediate school and two elementary campuses, as well as convert two ninth-grade centers back to intermediate schools.
This week’s sale is the second tranche of that authorization to be sold and about $66 million remains following this issue. Officials expect the authorization to meet facility needs through 2010. They may then call for another bond election at that time, according to analysts.
O’Hara said the district instituted a policy a few years ago to have all three rating agencies assign a rating to bond sales and it’s worked well. He added that this sale also benefited from the recent upgrades.
“We had another double-A sale the other day and this matched that really well,” he said. “If you look at it from maturity to maturity, we were probably able to pick up one or two basis points due to the upgrades and investors are looking at [underlying ratings] more and more.”
O’Hara said the district plans to bring another $53 million of new-money bonds to market in July and the final $13 million in July 2010.
