DALLAS — As Standard & Poor’s continues to look closer at the credits of smaller, more geographically isolated issuers, a number of Texas school districts received upgrades of their underlying ratings this week.
The agency has said it used to constrain the ratings of such issuers because of their location and smaller tax and population bases, but now the significance of those factors has lessened in the agency’s analysis.
When Standard & Poor’s upgraded the credit of 16 smaller Texas towns in March, analyst Paul Jasin said at the time “we believe that these entities warrant higher ratings because of their stable financial positions and generally high reserve levels, coupled with low debt burdens and very limited capital plans.”
Director James Breeding said the same is true for these latest upgraded school districts, although they only bring new bonds to market sparingly.
“Some issue once and are done with their capital-improvement needs for the next 20 years,” he said.
The Texas economy continues to outpace much of the country and helps keep keeps these credit strong.
“In general, economic activity in Texas remains stable, with low unemployment, minimal impact from the housing slowdown to date, and overall high property tax collections, which, we believe, serve to further stabilize revenues,” Jasin said earlier this year.
This week, Standard & Poor’s raised the ratings for the Cuero Independent School District and the Tarkington Independent School District two notches to A from BBB-plus. Analysts said both districts merited the upgrade due to a strong history of high fund balances.
Analysts said Cuero, which is about 90 miles southeast of San Antonio near the Gulf Coast “has become a regional center for retail trade and health care” with an economy based on oil and gas production, manufacturing, and agribusiness. The district serves nearly 2,000 students at four campuses.
Tarkington ISD is about 45 north of Houston and also serves about 2,000 students in four schools in and around the town of Cleveland.
The underlying credit of the tiny Miller Grove Independent School District also was raised two notches to A-minus from BBB due to a stabilizing financial position.
Analysts said the the rating reflects the district’s limited, rural-based economy, adequate income levels, and manageable debt levels with limited capital needs. The district’s assessed value averaged more than 12.5% annual growth the the past five years, according to analysts.
Miller Grove ISD serves 260 students in Hopkins County about 90 miles east of Dallas.
A little further south in East Texas, the Gilmer Independent School District had its underlying rating bumped up three notches to A-plus from BBB-plus.
“The upgrade reflects what we view as conservative management that has consistently produced strong financial results,” Standard & Poor’s analyst Edward McGlade said.
Gilmer ISD serves about 2,400 students in four schools.
The Petersburg Independent School District’s credit was raised to A from BBB due to strong fund levels and below-average debt levels. The Texas panhandle district serves about 300 students.
The Kermit Independent School District was upgraded to A from BBB-plus.
“We expect that the district will continue to demonstrate strong financial performance, including the maintenance of sound reserves as a hedge against the property tax base because energy sector economic cycles will continue to have an effect on it,” analyst Daniel Cuddy said.
Kermit ISD serves about 1,200 students in the Permian Basin section of West Texas.
Further west, the Tornillo Independent School District had its underlying rating upgraded to A-minus from BBB. The district, which is about 45 miles south of El Paso on the Rio Grande, has a total enrollment of about 1,200 students.
The outlook is stable for each of the credits, and analysts affirmed the enhanced AAA rating on all of the districts’ outstanding debt, which is backed by the state’s gilt-edged Permanent School Fund.