DALLAS — North Forest Independent School District's $56 million of outstanding debt jumped 13 notches on the Standard & Poor's ratings scale on Wednesday after the district's annexation by the Houston Independent School District.
The upgrade to AA-plus from its previous junk-bond rating of B came after the July 1 annexation became official, ending North Forest's history of financial trouble and poor performance that led the Texas Education Agency to order a merger with Houston ISD.
Despite its non-investment-grade underlying rating, North Forest ISD was able to issue bonds with the triple-A guarantee provided by the Texas Permanent School Fund.
Houston ISD's credit will not be affected by the acquisition, S&P said.
"We do not believe Houston Independent School District's annexation of North Forest Independent School District will have a material effect on Houston Independent School District's credit quality due to its extremely large property tax base, enrollment base, and operating reserves," said Standard & Poor's credit analyst Omar Tabani.
Houston ISD, the largest school district in Texas, has more than $2.5 billion of general obligation debt outstanding."
North Forest ISD was last rated Ba3 with no outlook by Moody's Investors Service on July 25, 2012.
After several years of poor academic and financial performance, the TEA commissioner on Feb. 7 recommended North Forest ISD's annexation into the neighboring Houston ISD. After a protest by North Forest, the order was upheld in a State Office of Administrative Hearings review.
Since fiscal year 2006, the North Forest district financial performance declined as enrollment fell, reducing state aid. Financial controls were also deemed inadequate. The district's independent auditor expressed ongoing concerns in previous years regarding the district's ability to continue to exist.
With the annexation, Houston ISD officials began upgrading the schools and integrating systems with North Forest. Officials said the North Forest schools will be ready for the start of the school year in August.