DALLAS — The Fort Worth Independent School District issued $185.2 million of debt yesterday as it peruses a large capital improvement plan that includes 135 projects.

The deal consisted of $182.8 million of new-money unlimited tax bonds and a $2.35 million refunding component. The sale is the second from a $594 million bond package approved in November 2007.

Yields ranged from 0.50% with a 3% coupon maturing in February 2010 to 4.59% with a 5% coupon in 2029.

The true interest cost was 4.07% and the refunding bonds resulted in present-value savings of 9.6% for the district, according to First Southwest Co. vice chairman David Medanich.

“The market was very strong today and the district decided to go ahead and get it done,” he said.

RBC Capital Markets Corp. was lead manager for yesterday’s negotiated sale. Estrada Hinojosa & Co. and Siebert Brandford Shank & Co. were co-managers. JPMorgan and Jefferies & Co. rounded out the underwriting syndicate.

First Southwest is the district’s financial adviser and Kelly Hart & Hallman LLP is bond counsel.

The district plans to use the proceeds to build six new schools and upgrade existing campuses, many of which are more than 50 years old. Officials also hope to shutter some of the more than 900 classrooms in portable buildings that are currently in use across the district.

The bonds, which are structured as serials maturing next year through 2029, were not backed by Texas’ triple-A rated Permanent School Fund, which has suspended guarantees until at least September due to the declining value of the fund.

Many Texas school districts issuing bonds lately have wrapped the debt with private bond insurance, and officials for the Fort Worth district had planned to wait until just before pricing to decide on insurance.

“Insurance is something you always apply for and if it makes sense you go ahead and wrap the debt,” First Southwest’s Medanich said before the deal priced. “But of course we try to wait until the last minute to see if it’s absolutely needed or not.”

In the end, officials elected to go without credit enhancement.

Medanich had expected strong demand for the debt.

“Bonds in the double-A level are selling very well,” he said. “One good thing that’s happened from the market turbulence of the past year or so is that people are now looking closer at the issuer’s credit. It used to be that investors were simply relying on seeing that insurance was there or that enhancement programs like the PSF were in place. They would see that triple-A and be happy with that, but that’s no longer the case.”

Standard & Poor’s assigned a AA underlying rating to yesterday’s issue, citing the district’s sizeable tax base, strong historical financial performance and fund balance, and location in the Dallas-Fort Worth metro area.

Analysts said credit concerns include revenue-raising constraints due to the state’s maintenance and operations-tax rate restrictions, “the challenges associated with shifting demographics and growth pockets, and a sizable capital improvement plan, resulting in a significant increase in the district’s annual debt service requirement and net debt ratios.”

Fort Worth ISD serves about 79,150 students in 144 schools. Debt service is projected to climb to $71.6 million following this sale and then decline starting in 2011, according to Standard & Poor’s.

Moody’s Investors Service assigned a Aa2 to the sale and affirmed the rating on $506 million of parity debt outstanding.

Analysts said the district’s sizeable and diverse tax base averaged 7.5% annual growth the past five years to $24.9 billion for fiscal 2009.

“A significant part of growth in recent years has been attributable to higher reappraisals related to actual and potential natural gas discovery” in the region, coupled with new development, Moody’s said.

Earlier this year, officials declared the district is in a “financial exigency.” The action doesn’t affect the bond sale and is more a procedural step clearing the way for the school board to begin cutting jobs, if they choose to do so, to deal with an expected budget shortfall of about $15 million for fiscal 2010.

“It’s the only way to deal with contracts,” which are the most expensive part of a school district’s budget and consequently the easiest way to address the shortfall, Medanich said.

He added that the district still has a strong fund balance and plenty of room to increase its tax rate if necessary.

Moody’s said a $29.7 million deficit for fiscal 2008 lowered the district’s fund balance to “a still-healthy $124.4 million, or 22.7% of annual revenues.” Another $43 million drawdown is expected for fiscal 2009 that will lower the fund balance to about 15% of revenue, according to analysts.

In 2007, the Texas Legislature mandated school districts lower their maintenance and operations tax over two years to a maximum of $1 per $100 of assessed value from $1.50 per $100.

Many school officials have decried the lowered rate, claiming it handcuffs their ability to keep pace with enrollment gains and update aging facilities.

Officials have the ability to add back 4 cents without an election, and Fort Worth ISD chose to do so, as did about 100 other districts. A district also can seek voter approval to add back another 13 to 17 cents to the rate, and Fort Worth officials are mulling such an election.

Last September, the district completed the first major project outlined in the November 2007 bond package with the renovation of the athletic tracks of 15 middle schools and construction of a new track. Officials have said all projects in the capital improvement plan remain on schedule to be completed by the end of 2011. Officials plan to issue the remaining $160.7 million over the next two years.

Fort Worth ISD has faced increased scrutiny for much of the decade. Some proceeds from a $398 million authorization passed in 1999 were mishandled, and a former maintenance employee and a contractor were eventually found guilty of defrauding the district.


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