DALLAS — Less than a month after voters approved a record $748 million bond proposal, Katy Independent School District will test the market with $139 million of refunding bonds carrying an upgrade from Moody's Investors Service.
The refunding bonds are expected to price in two series on Nov. 25 through negotiation with Wells Fargo Securities as book runner. Clarence Grier, director of RBC Capital Markets, serves as financial advisor.
Moody's upgraded the Katy ISD's underlying rating to Aa1 from Aa2 on Nov. 20, citing the district's "sizeable and growing tax base, trend of surplus financial operations and maintenance of healthy reserve levels, and strong socioeconomic profile."
Standard & Poor's Ratings Services affirmed its AA underlying rating but revised its outlook to positive from stable.
"We base the outlook revision on our expectation that continued growth in the tax base should provide management with significant flexibility to implement the recently approved $748 million bond program without material changes to the district's debt ratios and reserve levels," said Standard & Poor's analyst Ann Richardson.
"We could raise the rating if we believe that the timing and magnitude of future issuance of debt will be supported by corresponding growth in the tax base and the maintenance of very strong reserves," she added.
The higher underlying rating could help in marketing the bonds, which also carry an enhanced triple-A guarantee from the Texas Permanent School Fund.
Based in the southwest Houston suburb of Katy, the district is the 12th largest in Texas, serving parts of Harris, Fort Bend and Waller Counties. The district serves 60,803 students and operates on an annual budget of $636.2 million.
Katy ISD chief financial officer Christopher Smith said savings on the refunding could total nearly $29 million.
The $119 million of Series A bonds are unlimited tax general obligation bonds, and the $18 million of Series B are limited tax GO's.
"The lack of a rating distinction between the unlimited tax and limited bonds reflects the districts ample flexibility under the tax rate limit," Moody's analyst Charles Martin explained.
With about $1.1 billion of outstanding debt, KISD last went to market in July 2013 with $376 million of bonds.
As the district seeks savings in the refunding deal, the board has already begun planning for projects to be funded with the new bonds approved by more than 55% of the voters on Nov. 4.
The bond package, designed primarily to address the district's rapid growth and aging facilities, includes six new campuses, six comprehensive renovations, and improvements to 43 District facilities. Money is also provided for technology retrofits, safety and security updates district-wide and a second stadium.
At the school board's Nov. 18 meeting, trustees reviewed architectural firms chosen to work on seven major projects including a comprehensive renovation of Mayde Creek High School, upgrades to the South Transportation Center, and Career and Technical Education and expansions at five junior highs.
The firms identified for seven projects in the bond package are Stantec, Pfluger Architects, Huckabee Inc., and IBI.
"Approval of these firms at the Nov. 24 board meeting will keep the district on track to meet the schedules set for these projects," officials said.
Voter approval of the bonds came a year after rejection of a $99 million proposal whose largest component was a second high school stadium adjacent to the first one.
At $58 million, the price tag for the stadium in this year's bond proposal was $11 million lower than the $69 million defeated in 2013. The 2013 proposal, opposed by 54% of the voters, was the first in the district that did not call for building any schools.
In the 2014 campaign, opponents focused on the stadium and the record size of the bond proposal. An anti-tax organization known as Empower Texans also questioned the district's plan to use the same architectural firm that designed a $60 million stadium in Allen, Texas, that had to be shut down after cracks appeared in the concrete structure.
In the neighboring Fort Bend ISD, voters showed even strong support for a $484 bond proposal, with 74% in favor.
Katy and Fort Bend ISDs serve one of the fastest growing and most affluent suburban regions of Houston.
"Katy voters understand how fast this community has been growing and this trend will continue for at least the next 10 years," Katy ISD Superintendent Alton Frailey said in a written statement after the election. "With the passage of this bond, we are ensuring that all 3,000 new students coming into our district every year receive the same educational opportunities our current students have in the classroom."
With student enrollment projected to hit 100,000 in 10 years, Katy ISD is ranked the second fastest growing school district in the state and 23rd in the nation.
"Many campuses are already facing challenges resulting from overcrowding and aging facilities," Fraily said. "By building six new campuses, this bond package would add nearly 9,000 seats across the district and provide enrollment relief to more than 10 campuses.
One factor that could slow the Houston area's economic steamroller is falling oil prices. Fort Bend County's largest employers include the oil field services giants Schlumberger and Baker Hughes, which recently announced plans to merge with Halliburton. Dyna-Drill, a subsidiary of Schlumberger, recently moved its headquarters from Houston to Katy, which occupies the so-called "energy corridor."
Houston-based Hercules Offshore Inc. recently announced more than 300 layoffs due to falling oil prices, and energy experts expect the $38 billion merger of Halliburton and Baker Hughes to bring further reductions. The two companies employ more than 15,000 people in the Houston area.
Houston-based Apache Corp. last week announced plans to reduce its 2015 North American onshore budget by 25% or $1.4 billion to $4 billion.
Despite those signals of a weakening energy economy, a November report from the Greater Houston Partnership cautioned against undue alarm. The Houston area enjoys a much more diverse economy than the one that suffered sharp pain in the 1980s oil recession, analysts said.
"Job growth will slow but it's unlikely to turn negative," the report said. "During the '80s recession, the region lost 221,000 jobs, one in every seven in the region. If Houston were to suffer a comparable loss today, the region would lose 418,000 jobs, almost every job gained since the end of the Great Recession. That's not going to happen."
"Once the '80s recession bottomed, Houston needed only 38 months to recover all the jobs it lost," the GHP report noted. "The region went on to enjoy more than a decade of growth. Once the Great Recession ended, Houston needed only 22 months to recover all the jobs lost then -- one of the fastest recoveries in the nation. Houston's job growth has outpaced that of the nation's major metros for most of the past four and a half years."
