DALLAS — Consistent operating surpluses have solidified the financial position of the Argyle Independent School District, prompting Standard & Poor’s to upgrade its underlying credit A-minus from BBB-plus.

The small but growing North Texas district plans to issue $20.8 million of unlimited-tax school building bonds through a negotiated sale Thursday.

Southwest Securities Inc. is lead manager for the deal with First Southwest Co. and Edward Jones as co-managers.

RBC Capital Markets is the financial adviser to the district, which is about 30 miles north of Fort Worth.

The bonds also come to market with the triple-A wrap provided by the Texas Permanent School Fund.

Standard & Poor’s said the district’s significant property tax-base expansion and “considerably stronger financial position due to consistent operating surpluses” led to the upgrade.

“The upgrade to the A level obviously opens up a broader investment base for the district that we believe should translate into lower cost of issuance for the district,” according to Matt Boles, managing director at RBC.

Moody’s Investor Service assigned an A2 rating to the issue.

Proceeds from this week’s sale will fund renovations to an empty facility that’s being converted to a campus for fifth and sixth grade, technology upgrades across the district, and acquisition of land for future campuses.

Ten years ago, the district had an enrollment of 638 and no high school. The current enrollment of 1,732 students is up slightly from the prior year, following double-digit gains for much of the decade.

Paul Lyles, the district’s chief financial officer, said there are two big residential developments about to begin construction within the district.

“We’ve had some slow going as far as enrollment is concerned the past few years, but we could very well see a spike to growth of 10% to 12% over the next five years or so,” Lyles said.

Analysts said the assessed valuation of the district has more than doubled over the past six years to $898.9 million for fiscal 2008.

This week’s issue exhausts the bond package approved by voters in November, and Lyles said officials expect to have to call for another election within the next three to five years to build more schools for the expected growth in population.

Argyle ISD is just one of a few Lone Star state school districts that received an upgrade this week.

Moody’s raised its underlying rating on the Allen Independent School District to Aa3 from A1, as the North Texas district prepares to issue $18.5 million of general obligation bonds Thursday in a competitive sale.

First Southwest is the financial adviser to the district. This sale exhausts authorizations approved by voters in 2002 and 2004.

Bond proceeds will fund new schools and new buses for the growing district about 25 miles north of Dallas. Total enrollment has climbed to more than 17,000 students this year from 13,815 in 2004.

Analysts said brisk residential development has led to population growth and subsequent enrollment gains for the district.

Assessed valuation has averaged 10% annual growth the past five years to $6.2 billion in fiscal 2008, according to Moody’s. District officials attributed much of the 12.2% increase from fiscal 2007 values to new construction, and said an expected slowdown in residential construction will be offset by new commercial development, analysts said.

Standard & Poor’s also upgraded the underlying credit of the Bellville Independent School District to A-minus from BBB-plus, citing continued expansion of the economic base and property tax base diversification.

The district, which is about 65 miles northwest of downtown Houston, is preparing to bring nearly $3.7 million of unlimited-tax school house building and refunding bonds to market.

Just as with the Argyle ISD deal, both of these sales come to market with the triple-A backing of the Permanent School Fund.

Boles, the financial director for the Argyle ISD, said “you need to pick your spots in the current market of volatility” when pricing PSF-backed debt.

But he said there’s some flexibility in the timing with that deal, as with most, and he doesn’t foresee any problems getting the bonds sold.


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