DALLAS — Cypress-Fairbanks Independent School District got a lift in its underlying ratings as it heads to market with $463 million of bonds, one of the largest issues from a Texas school district this year.
Moody's Investors Service raised Cy-Fair's underlying general obligation rating to Aa1 from Aa2. The outlook is stable. That brought the district just one notch below the triple-A guarantee from the Texas Permanent School Fund that wraps most school bond issues in the state.
"The upgrade to Aa1 reflects the large size and growth trend of the district's tax base, sound financial operations marked by surplus operations and a growing general fund reserve level, as well as the district's favorable socio-economic profile," Moody's lead analyst John Nichols wrote in his Oct. 1 report. "The Aa1 rating also incorporates the district's high, but manageable debt burden."
The upgrade adds a degree of comfort to risk-averse investors and institutional buyers as the district begins issuing the first bonds from the $1.2 billion approved by voters May 10. That bond proposal was the largest in the state this year.
Stuart Snow, associate superintendent for business, finance and technology services at the district, said the size of the deal could vary based on refunding opportunities.
"Refunding is going to kind of a game-day decision based on market," Snow said of the pricing scheduled for Thursday, Oct. 9. "It's looking pretty good right now."
JPMorgan is senior manager and book-runner on the deal. Ryan O'Hara, managing director at BOSC Inc. is financial advisor. Bracewell & Giuliani is bond counsel with co-counsel Bates & Coleman. Andrews Kurth is underwriter's counsel.
Standard & Poor's rates the bonds an underlying AA-minus. Fitch Ratings does not rate the deal.
Snow said $330 million of new money will include authorizations from 2004, 2007 and last May.
The district suffered a $40 million cut in state aid in fiscal year 2012 but still managed to produce a $27.4 million surplus, according to Moody's.
"By reducing staff by 214 teachers and 80 administrative positions, and cutting non-payroll departmental costs by 5% the district reduced recurring expenses by a total of $46 million," Nichols said. "Ultimately, the $27.4 million surplus increased the total General Fund balance to roughly $159.5 million, which equates to a healthy 23.3% of revenues."
Cy-Fair covers about a tenth of Harris County and is the state's third largest school district in terms of enrollment. The district's taxable values fell in fiscal 2011 by 3.6% and fiscal 2012 by 0.9% but quickly rebounded with 13.7% and 14% increase in fiscal 2014 and 2015, according to Moody's.
"The substantial growth in fiscal 2014 and 2015 stemmed from ongoing residential and commercial developments," Nichols wrote. "In the five-year period through fiscal 2015 annual growth in assessed value averaged 4.7%, even including the declines associated with the most recent economic recession."
By 2022, the district's demographic study showed, more than 33,377 new homes are expected in the district.
