DALLAS — Standard & Poor’s raised the underlying rating on the Conroe Independent School District to AA from AA-minus as the suburban Houston district prepares to bring two tranches of debt to market next week.
Analysts said the upgrade reflects the district’s consistent tax-base expansion, sustained enrollment growth, and “very strong financial performance.”
Officials plan to offer $85 million of Series 2009A unlimited-tax school building bonds and about $13.4 million of Series 2009B unlimited-tax refunding bonds either Monday or Tuesday through negotiated sales led by Goldman, Sachs & Co.
Both series are structured as serials with the new-money debt maturing from 2011 through 2035 and the refunding bonds maturing from 2011 through 2021.
The new-money bonds are the second slice of a $527 million bond package approved last May. The district issued $85 million in June and plans similar-sized offerings annually for a few years. Yields on the bonds sold last summer ranged from 2.66% with a 3% coupon in 2010 to 4.89% with a 4.75% coupon in 2028.
RBC Capital Markets is the financial adviser to the district, which has about $745.1 million of debt outstanding. Vinson & Elkins LLP serves as bond counsel.
Ahead of last year’s bond election, the district’s long-range facility plan called for four new elementary schools, two junior high schools, one intermediate campus, renovations to numerous existing facilities, and the conversion of a junior high into a ninth-grade campus. Other pressing needs include expansion of parking lots, improvements to some facilities to comply with the Americans with Disabilities Act, and heating and air conditioning upgrades at older facilities.
Conroe ISD, which is roughly 35 miles north of downtown Houston, has a current enrollment of about 47,900 in more than 50 schools and is adding almost 1,500 students a year. Projections show enrollment swelling by about 21,500 students over the next eight years, necessitating at least seven new campuses.
The district carries an underlying rating of Aa3 from Moody’s Investors Service.
Standard & Poor’s said the district’s property tax base increased 55% the past five years to $18.3 billion for fiscal 2009 and residential development continues at a steady, albeit slower, pace due to the overall economic slowdown.
Montgomery County has experienced rapid residential growth over the past quarter century, and the current population of about 413,000 is up more than 40% since the 2000 Census figure of nearly 294,000.
Conroe ISD has an estimated populationof 252,500 and is one of a handful of school districts that serve Montgomery County and Houston’s northern suburbs.
Analysts also said the district’s unreserved general fund balance remains very strong at $72.7 million for fiscal 2008, or a very strong 24.5% of expenditures.
Next week’s sale won’t be backed by the state’s triple-A rated Permanent School Fund, as the bond-guarantee program was suspended by the Texas Education Agency last week.
Texas school districts will have to secure private bond insurance or go to market on the strength of their underlying rating until at least September, which is when state officials anticipate restarting the program following the seasonal retirement of bonds in August.
Education Commissioner Robert Scott said the declining value of the fund is “to the point that outstanding guarantees exceed capacity under the federal regulations.”
One financial adviser said the suspension of the PSF “is already hurting all districts and causing some smaller districts to go out and get bond insurance.”
