Keller ISD's $162M Leads Week as State Suspends PSF Guarantee Program

DALLAS — The Keller Independent School District’s $162 million issue tops this week’s docket in the Texas municipal debt market.

The negotiated sale from the growing North Texas district exhausts the entire $142.3 million bond package approved in November and includes another $19.7 million of refunding bonds.

Morgan Keegan & Co. is lead manager. First Southwest Co. is the financial adviser to the system, and McCall, Parkhurst & Horton LLP serves as bond counsel.

The bonds won’t be backed by the state’s triple-A rated Permanent School Fund. Keller ISD carries strong underlying ratings of AA from Standard & Poor’s and Aa3 from Moody’s Investors Service.

Standard & Poor’s upgraded its rating on the district to AA from A-minus in late February due to continued economic expansion. Keller ISD’s fiscal 2009 taxable-assessed value of $10.2 billion is 73% higher than five years earlier. The higher rating applies to about $745.4 million of debt outstanding.

Analysts said the district’s enrollment averaged between 5.8% and 12.9% annual growth over 20 years through fiscal 2007, more than quadrupling the total student population to about 30,275 in fiscal 2009.

Officials project enrollment growth of 3% to 6% for the next few years, pushing the student population closer to 40,000. Keller ISD serves parts of Fort Worth, Colleyville, Haltom City, Hurst, North Richland Hills, Southlake, Watauga, Westlake, and most of the city of Keller.

“The needs of the district are pretty strong, so we’d probably go ahead with the sale now anyway” regardless of the PSF backing, chief financial officer Kent Morrison said.

But other district’s that don’t have as strong an underlying rating may not be able to get debt to market as easily for the next few months.

Late last week, Texas Education Commissioner Robert Scott suspended the PSF bond-guarantee program until at least September.

Scott cited the declining value of the fund “to the point that outstanding guarantees exceed capacity under the federal regulations.” Following the “seasonal retirement of bonds in August,” additional capacity may open, he said.

“Districts that have received preliminary approval for the guarantee will not receive final approval to sell their bonds with the PSF guarantee,” Scott said. “We had hoped to manage the remaining sales within the reserve capacity, but there is no reserve capacity left at current market prices.”

The Houston Independent School District plans to issue about $14.2 million of limited tax refunding bonds in a negotiated sale led by Morgan Keegan.

HISD is the largest school system in the state with nearly 200,000 students in 293 schools. The district carries underlying ratings of Aa2 from Moody’s and AA-plus from Standard & Poor’s. First Southwest is the district’s financial adviser.

Terrell Palmer, senior vice president at First Southwest, said HISD did apply for the PSF backing but the state wasn’t able to extend the guarantee program to the issue due to the fund’s lack of capacity.

“Of course, the PSF would be nice, but this is a short deal — just three years out — and it wasn’t absolutely critical in getting this transaction sold. So we’re relieving the state of $14 million that they won’t have to guarantee,” he said.

The deal will be structured with two term maturities totaling $13.7 million of current interest bonds due in 2011 and 2012, and $480,000 of capital appreciation bonds the majority of which mature in 2010.

The Denton Independent School District also will try to price $30.9 million of refunding bonds this week through a negotiated sale. The underwriting syndicate includes Morgan Keegan, First Southwest, Raymond James & Associates Inc., and Wachovia Bank.

RBC Capital Markets and BOSC Inc. are the district’s co-financial advisers. The refunding combines two series of variable-rate debt into one fixed-rate series.

Denton ISD carries underlying ratings of AA-minus from Fitch and AA from Standard & Poor’s.

The growing North Texas district adds more than 1,000 students annually and has a total enrollment of nearly 23,400 students at 30 campuses.

Elsewhere, Parker County plans to issue $60 million of unlimited tax road bonds this week through a negotiated sale led by Morgan Keegan. RBC, Southwest Securities Inc. and Estrada Hinojosa & Co. Inc. are co-managers. The bonds are structured as serials reaching final maturity in 2034.

First Southwest is the county’s financial adviser and McCall, Parkhurst & Horton is bond counsel.

Just west of Tarrant County and Fort Worth, Parker County is growing with a handful of bedroom communities developing to meet the needs of North Texas commuters. 

In August, Standard & Poor’s upgraded the underlying credit of the county to AA-minus from A-plus, citing continued expansion and diversification of the economy and a good financial performance.

Fitch Ratings assigned a AA-minus to the issue.

Analysts said the county is experiencing high residential development because of its access to employment opportunities in Fort Worth, direct transportation access via Interstate 20, and the availability of land, predominantly in unincorporated areas.

Development of a 7,300-acre, master-planned community that is located right near the convergence of Interstate 20 and Interstate 30 is projected to add another 40,000 residents by 2015. The county’s population of about 109,000 is up 23% from the 2000 Census tally of 88,495.

 

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