Fitch brightens Austin school district's rating outlook

BY SourceMedia | MUNICIPAL | 11/29/23 02:40 PM EST By Karen Pierog

Fitch Ratings revised the outlook on Austin Independent School District's AA-plus rating to stable from negative after determining it can withstand budgetary pressures.

The rating agency said the move reflects an assessment "that Austin ISD can maintain a strong operating performance profile as it manages the budgetary pressures resulting from modest but ongoing enrollment and average daily attendance losses and growing recapture payments" to the state of Texas under its school funding formula.

"Long-term liabilities and fixed costs are expected to remain within Fitch's low and moderate range, respectively, despite the district's planned issuance of its remaining $1.8 billion bond authorization over the medium term," Fitch added in a report this week.

Austin voters approved a record $2.44 billion of general obligation bonds in November 2023 for the district, which sold an initial $542 million tranche in January.

The outlook revision "shows the district's continued commitment to strong financial management practices," said Chief Financial Officer Eduardo Ramos.

"Despite public education funding challenges in Texas, the district has balanced its budget over the past two years and maintained our local board fund balance policy thresholds," he said in an email.

Austin ISD will be back in the municipal bond market in the spring with a yet-to-be-determined amount of bonds, Ramos added.

Its January bond sale was unable to obtain a guarantee from the triple-A Texas Permanent School Fund due to a huge drop in capacity under the fund's limit.

Despite being rated an underlying triple-A by Moody's Investors Service (MCO) and Kroll Bond Rating Agency, the bonds' true interest cost of 3.67% was 10 basis points higher than a $551 million Dallas ISD bond issue with the PSF guarantee that priced the same day.

In May, the Internal Revenue Service greatly increased the triple-A-rated debt guarantee program's limit for the first time since 2009. As of Sept. 30, the program's projected available capacity was nearly $33.7 billion with more school debt coming.

Texas school districts placed $18.1 billion of bonds in 138 measures on Nov. 7 ballots with voters only rejecting 60 bond proposals totaling $2.87 billion, according to Texas Bond Review Board data.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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