|[November 12, 2013]
Fitch Rates Clear Creek ISD, TX, ULTs 'AAA' PSF; 'AA+' Underlying; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned an 'AAA' PSF rating and an 'AA+' underlying
rating to the following Clear Creek Independent School District, Texas
(the district), unlimited tax (ULT) bonds:
--$46.045 million ULT refunding bonds, series 2013A;
--$138.19 million ULT school building adjustable rate bonds, series
The 'AAA' rating is based on a guarantee provided by the Texas Permanent
School Fund (PSF; bond guarantee program rated 'AAA' by Fitch). The
bonds are expected to price via negotiated sale the week of Nov. 18,
2013. Proceeds will be used to finance school renovations and repairs,
purchase instructional technology, and construct extracurricular
facilities, including a sports stadium.
In addition, Fitch affirms the following ratings for the district:
--$602.7 million of ULTs.
The Rating Outlook is Stable.
The bonds are secured by revenues from an unlimited tax levied against
all taxable property within the district. The PSF guaranty applies to
all outstanding series except for series 2005, 2009, 2010 and 2012.
KEY RATING DRIVERS
SOUND FINANCIAL PROFILE: Prudent planning and cost management support a
history of consistent financial results and adequate policy-level
reserves. Officials offset state-wide funding losses with cost savings
during the fiscal 2012/2013 biennium, enabling continued strong
STABLE ECONOMY: The district is located in Harris and Galveston
counties, benefiting from a diverse economy with prominence in the
energy and petrochemical industries. Modest taxable assessed valuation
(TAV) gains have returned, fueled mostly by residential development
underway in Galveston County.
HIGH OVERALL DEBT: Overall debt is high and principal amortization is
slow; however, the district's fixed cost burden, including annual debt
payments and pension contributions is moderate.
ABOVE-AVERAGE DEMOGRAPHIC PROFILE: The district's unemployment rate
historically trends below state and national averages; measures of
income and wealth exceed those of the state and the U.S.
SHIFT IN FUNDAMENTALS: The rating is sensitive to material changes in
fundamental credit characteristics, including the district's strong
financial management practices. The district's history of reserve
adequacy and sound financial management practices indicates expected
Clear Creek ISD encompasses 120 square miles and is located midway
between Houston and Galveston. The district's main population centers
include League City and the Clear Lake area of Houston.
DIVERSIFIED HOUSTON ECONOMY
The district's tax base is well represented by all segments of the oil &
gas industry characteristic of the region, but is diversified with
significant presence of the aerospace, other manufacturing, retail trade
and health service sectors. Diversity of the local economy tempers the
endemic oil & gas price volatility present in the Houston area economy.
Substantial downstream energy manufacturing additionally buffers the
local economy from oil & gas price declines.
Chemical and petroleum/coal products comprise the majority of the
region's sizable export market (second largest U.S. export market behind
New York according to IHS (News - Alert) Global Insights), supported by a strong
multimodal transportation network which includes the Houston Ship
Channel (HSC). Located along the HSC is the massive Bayport Industrial
Development with 62 industrial plants in operation.
The district's largely residential TAV has resumed modest growth,
averaging 3% in fiscal years 2013 and 2014, after declining by 2.2% in
fiscal 2011 and flattening in fiscal 2012. The top 10 taxpayers comprise
a modest 4.8% of the district's $15.8 billion TAV. Although much of the
district is mature, undeveloped pockets remain in the 40% represented by
Galveston County, where the district anticipates further TAV gains in
the next sevral years.
STRONG FINANCIAL PERFORMANCE
The district's financial performance remains strong despite state aid
cuts totaling $13.5 million (12% reduction) and $4 million (4%
reduction) in fiscal years 2012 and 2013, respectively. Aided by
attrition-based staff reductions, reduced spending, enrollment-based
revenue growth, and a one-time $5.9 million EduJob grant, fiscal 2012
posted a net operating surplus of $0.9 million (0.3% of spending),
increasing the unrestricted fund balance to $52.9 million (19.1% of
spending and transfers out). Notably, these results are net of a large
$12.4 million transfer (4.5% of spending) to the capital projects fund
for one-time capital outlays. In line with the district's 2-month (16%
of spending) fund balance policy, such transfers are made annually from
any amounts in excess of the policy level. General fund transfers to the
capital projects fund totaled $48 million between fiscal 2007 and fiscal
Additional attrition-based staff reductions and utility cost savings
enabled the district to project a $7.5 million net operating surplus for
fiscal 2013, $6.5 million of which was transferred to the capital
projects fund. The fiscal 2014 budget includes a $5.8 million transfer
from the capital projects fund to the general fund, essentially
reversing most of the fiscal 2013 transfer due to reduced capital
project cost estimates.
HIGH OVERALL DEBT BURDEN
The district's overall debt (including overlapping debt of
municipalities) is high at $7,096 per capita or 8.3% of market value.
The current offerings are the first installment of a $367 million bond
authorization approved by a high 68% of voters in May 2013. The size of
the authorization exceeds Fitch's expectation of $150 million - $300
million. Bond proceeds will fund major school renovations ($182
million), safety, priority repairs, and growth-related facility
additions ($89 million), instructional technology ($45 million), and
extracurricular facilities, including a new sports stadium ($39 million).
The series 2013B adjustable rate issue is structured with an initial
five-year term, after which a mandatory tender will put the bonds back
to bondholders if not remarketed successfully. In the event of a failed
remarketing, bondholders receive a stepped interest rate, capped at
6.5%. As such, the structure does not require a liquidity provider.
For the entire 2013 authorization, the maximum I&S tax rate is projected
to total $0.41 per $100 of TAV, based on an assumed annual tax base
growth projection of 2% which Fitch considers reasonable. The projected
tax rate impact leaves sufficient capacity in relation to the statutory
rate of $0.50 for new debt issuance. However, debt amortization is slow
with 38% of debt scheduled for repayment in the next 10 years. Fitch
expects amortization to slow further with full issuance of the recently
MODEST PENSION AND OPEB COSTS
Some of Fitch's concerns about high debt levels are offset by low
long-term liabilities related to pensions. The district participates in
the state Teacher Retirement System (TRS), a cost-sharing multiple
employer plan for which the state is responsible for the majority of
annual payments. Other post-employment benefits (OPEB) are also provided
through TRS. The district's annual required contributions for pension
and OPEB are determined by state law, and totaled $3.5 million in fiscal
2012, or a low 1.0% of operating expenditures. The district's total
carrying cost burden (annual debt service payments, pension and OPEB
contributions) represent a manageable 15.5% of fiscal 2012 spending.
A historically low unemployment rate reflects ready access to the
Houston employment market. For League City, a local rate of 5.6% as of
July 2013 is improved from the prior year due to 3.2% year-over-year job
growth and compares favorably to state (6.7%) and U.S. (7.7%) averages
for the same period. The district's poverty rate trails state and
national averages; median household income exceeds that of the state and
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com,
National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', Aug. 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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