DALLAS - The Katy Independent School District near Houston will enjoy Permanent School Fund backing and an upgrade to its underlying rating from Standard & Poor's as it goes to market with $25 million of general obligation bonds.
The district was one of the last to win PSF backing for its debt before the fund was frozen due to capacity limits and falling investment earnings. The Texas Education Agency that approves school districts for PSF guaranties began sending denial letters to districts this year.
With no clear sign on when PSF backing will again be available to confer triple-A ratings on school bonds, underlying ratings have become increasingly important. Some districts, such as Tyler Independent School District, have gone to market on their own double-A category ratings. But districts rated lower have postponed bond offerings until the market improves or the PSF returns.
Katy ISD's underlying rating from Standard & Poor was raised a notch from AA-minus to AA with a stable outlook. Moody's Investors Service affirmed its Aa3 rating. Both agencies granted triple-A enhanced ratings due to the PSF backing.
As part of its review process under its global ratings scale, Standard & Poor's has been systematically updating Texas school district ratings since 2008, said analyst Horacio Aldrete-Sanchez.
"For the most part in Texas we've seen upgrades," Aldrete-Sanchez said. "In the process, we've been de-emphasizing size and looking more closely at management."
By either measure, Katy's numbers are strong, analysts say.
"We believe that the district's management will adequately manage its high debt burden and maintain its sound financial position," said Standard & Poor's analyst Kate Choban. "We also believe the district's strong property tax base expansion will continue, especially in the commercial sector, and that enrollment growth will remain manageable, which should aid management in addressing its significant capital needs."
Located 28 miles west of downtown Houston, the district serves a population of about 240,000 in Harris, Fort Bend, and Waller counties with student enrollment of 56,483. Assessed value increased by more than $1 billion annually over the past eight years, reaching $18.2 billion in fiscal 2009, about $75,841 per capita.
With about $1 billion of debt outstanding, Katy ISD has issued debt on an annual basis over the past decade and has passed five bond referendums since 1994. It receives state aid for debt service payments, which are estimated to cover 11.6% of the district's fiscal 2009 debt service payments.
