2008-03-07 18:55:44 -

- Fitch Ratings assigns an 'AAA' rating to Frisco Independent School District, Texas' (the district) $90 million unlimited tax school building bonds, series 2008, based on the guarantee provided by the Texas Permanent School Fund (PSF), whose Insurer Financial Strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying rating of 'A' to the series 2008 bonds, which

are scheduled to sell competitively on March 13. Fitch also affirms the underlying 'A' rating to the district's approximately $902.9 million unlimited tax school building bonds outstanding. The Rating Outlook is Stable.

The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. The series 2008 bonds are further secured by the PSF guarantee. Proceeds will be used to construct, renovate, and equip school facilities, and to pay issuance costs.

Major credit drivers behind the district's underlying 'A' rating include a solid and improving financial profile, historically conservative and stable financial management, impressive tax assessed valuation (TAV) growth, and the strength and diversity of the regional economy. The district continues to be the fastest growing in the state, leading to substantial operating and capital pressures and very high debt ratios. General fund reserve levels have improved and now approximate the district's fund balance target. Moreover, the operating reserve level is expected to increase again at the close of the current fiscal year due to a change in the district's reporting period from August 31 to June 30.

Located approximately 20 miles north of Dallas, area transportation improvements and housing affordability have led to accelerated population and enrollment growth over the past decade. The district's estimated population surged from approximately 6,700 in 1990 to an estimated 105,000 presently. Enrollment for 2007-2008 is up roughly 15% from the prior year, and has expanded at an average annual rate of more than 20% since fiscal 2001. While district officials expect continued steady growth over the near term, a significant decline in housing starts currently in the district likely will generate a slowdown in enrollment gains at some point. Officials estimate that residential construction in the district is down 50% from recent peaks.

TAV growth continues to be very healthy, averaging annual increases of roughly 20% over the past five fiscal years. For fiscal 2008, the district's TAV grew by more than $2.5 billion, or another 21%, to $14.9 billion. Fitch believes the pace of TAV growth will slow going forward, as the slowdown in housing construction more than offsets the commercial development activity that reportedly is continuing at a solid pace. Over the longer term, recently completed and ongoing roadway improvements that connect the district with other parts of the Dallas-Fort Worth metropolitan area bode well for future growth.

As is the case with other fast-growing Texas school districts, direct and overall debt levels are high, and principal amortization is slow. Debt ratios likely will remain elevated given the May 2006 voter approval of a $798 million bond measure, among the largest bond measures ever approved in the state. The district has consistently received strong community support for growth-related capital programs, which is a credit strength. The 2006 authorization will fund the construction of 19 schools, support facilities, site acquisition, and technology and equipment purchases. After this issuance, the district will have about $708.5 million in remaining bond authorization. The district anticipates returning to market with another bond sale in fall, 2008.

Historically, financial performance has been sound despite the pressures associated with rapid enrollment growth and wealth equalization payments. Healthy TAV increases and solid budget execution generally have produced strong revenue gains and favorable year-end results. For fiscal 2007, the district benefited from the new state funding formula, continued TAV growth and good expenditure controls; as a result, the district reported operating net income of roughly $15 million for the year; the unreserved general fund balance totaled $26.7 million, or nearly 15% of spending and transfers out. For fiscal 2008, the district is planning to change its reporting period to a June 30 fiscal year to better coincide with the school year. This change is expected to contribute to a projected $12 million operating surplus, further swelling reserve levels.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Steve Murray, 512-215-3729 (Austin)
Gabriela Quiroga, 512-215-3131 (Austin)
Christopher Kimble, 212-908-0226
(Media Relations, New York)