DALLAS — Standard & Poor’s raised its rating on the Texas Southmost College District’s general obligation debt to AA with a stable outlook from A-plus, as the issuer prepares to come to market next month.
Analysts said the upgrade reflects the district’s low tax rate, which provides significant taxing flexibility based on a large and diverse total assessed value of $9 billion, as well as state support in the form of educational and capital appropriations and “very competitive and low cost of tuition compared to other community college districts.”
First Southwest Co. is the financial adviser to the district and Winstead PC is bond counsel.
The district initially planned to bring about $4 million of GOs and $3 million of maintenance tax notes to market, but a First Southwest representative said those figures may change before the deal is priced in late June.
Fitch Ratings rates the district’s GOs AA-minus. Moody’s Investors Service rates the bonds Aa3. Fitch also affirmed the rating on the district’s $61 million of GOs and $12 million of notes outstanding. A limited-tax pledge secures the debt.
Standard & Poor’s said the college’s affiliation to the University of Texas system through a partnership with the UT Brownsville campus further strengthens the credit, while the district’s low income and wealth indicators offset the credit strengths.
“The partnership with UT is very unique and not prevalent elsewhere,” said credit analyst Horacio Aldrete-Sanchez. “It began when UT saw the growth of the area and the need for a four-year campus and decided it was best to partner with the existing community college.”
The partnership began in 1991 when the institutions signed a 99-year agreement and agreed to be referred to as University of Texas at Brownsville/Texas Southmost College.
“We expect the college’s financial position will remain strong despite potential fluctuations in local tax revenues, student enrollment, and state appropriations,” credit analyst said Sarah Smaardyk in the upgrade note. “We also expect that management will maintain the low tax rate and that capital needs will remain limited.”
Standard & Poor’s also recently revised its outlook on the district’s outstanding revenue bonds to positive from stable due to “consistently positive operations on a full accrual basis.”
The debt is secured by a revenue pledge that includes a tuition fee, parking fees, net bookstore revenues, interest income, and additional revenues.
Unlike other community colleges around the country, Texas schools are able to issue both property tax-supported debt and debt secured by a pledged stream of tuition, fees, or auxiliary revenues, which help their ratings, according to Standard & Poor’s.
Texas Southmost College District is in Brownsville, which is the southernmost city in Texas and the largest city in the lower Rio Grande Valley. The city’s population of about 173,000 is up about 24% since 2000 and 75% higher than 1990.