DALLAS — The Waco Independent School District is coming to market next week with the second and final slice of a $172.5 million bond package approved in May 2008 to update aging facilities, following an upgrade to AA-minus from A-plus from Standard & Poor’s.
The central Texas school system plans to offer $45.5 million of school building bonds through a negotiated sale. The underwriting syndicate includes Piper Jaffray & Co., Southwest Securities Inc., First Public LLC, Raymond James & Associates Inc., and Stifel Nicolaus & Co.
RBC Capital Markets is the financial adviser to the district and Vinson & Elkins LLP is bond counsel.
Standard & Poor’s analysts said the upgrade reflects the district’s “diverse and growing economic base and historical commitment to a strong and stable financial position.”
Moody’s Investors Service assigned its A1 rating to the bonds and affirmed the rating on the district’s $167.3 million of parity debt outstanding. Fitch Ratings didn’t assign an underlying rating to the upcoming sale.
Texas school districts issuing bonds now must rely upon their underlying ratings to keep costs of borrowing as low as possible because bond insurance is prohibitively expensive and the state’s triple-A enhancement program has been suspended.
The Permanent School Fund was shelved in March by Education Commissioner Robert Scott due to the declining value of the fund. Officials await a ruling from the Internal Revenue Service on a proposal to increase the fund’s capacity to back bonds to five times its market value from the current two and a half times.
David Tiffin, vice president at RBC, said the upgrade should benefit Waco ISD, “as investors will read the research note and see they’re a well-managed and sound credit.”
Proceeds from the bonds will fund renovations to the district’s 33 campuses and provide for consolidation of schools to house 500 students per facility, according to analysts.
“Some of the new buildings will replace older facilities, often on the same site,” Tiffin said. “Their enrollment has been declining moderately and the hope is that after parents see these new facilities, they’ll put their kids back in the Waco schools rather than moving to the suburbs.”
The student population has fluctuated annually this decade, reaching nearly 16,000 in 2003 and dipping to 15,200 in 2007. Officials project an enrollment of 15,339 for the coming year with declines of less than 1% annually the next five years.
Management primarily attributes this enrollment decline to “urban sprawl,” according to Standard & Poor’s. “All new residential development is occurring outside the district, but business and retail developments continue to occur within district limits,” analysts said. “The district remains competitive with four magnet schools, and it is one of Texas’ few school districts with an international baccalaureate program.”
Waco is about 100 miles south of Dallas and 100 miles north of Austin. The school district’s taxable-assessed value averaged 6.8% growth the past five years to $3.73 billion for fiscal 2009, according to Moody’s.
