Fitch Rates Laredo Community College District, TX Combined Fee Rev Bonds 'A+'; Outlook Stable

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'A+' rating to $12.18 million of Laredo Community College District, TX (the district) fixed-rate combined fee revenue bonds, series 2011, to be sold through negotiation on or about Nov. 2, 2011.

Proceeds of the bonds will be used to fund the purchase, acquisition, construction, and equipping of district facilities and pay various costs of issuance.

At the same time, Fitch affirms approximately $56 million of outstanding district combined fee revenue bonds at 'A+'.

The Rating Outlook is Stable.

SECURITY:

Combined fee revenue bonds are secured by a pledge of various district revenues, including a building use fee, technology fee, institutional support fee and up to 25% of gross tuition revenues. The technology and institutional support fees are new components of the revenue pledge, incorporated with this issuance.

KEY RATING DRIVERS:

Healthy Debt Service Coverage from Pledged Revenues: Debt service coverage generated by the building use fee and a portion of gross tuition averaged approximately 2.15 times (x) over the past five years; the broadening of pledged revenues in conjunction with issuance of the bonds is expected to offset the increase in debt carrying charges.

Resource Accumulation: Consistently positive operating performance, even despite an increasingly pressured state funding environment, supports growth in the district's financial cushion relative to both expenditures and financial leverage.

Prudent Implementation of Capital Plan: Management's experience in financially planning for and funding capital plan projects enables the district to maintain a manageable pro forma debt burden.

CREDIT PROFILE

Healthy Debt Service Coverage

Pledged revenues historically included a building use fee and up to 25% of the district's gross tuition revenues. During fiscal 2010, these pledged sources totaled $6.03 million, providing a strong 2.46 times (x) coverage of annual combined fee revenue bond debt service. Upon issuance of the bonds, and the contemporaneous expansion of the revenue pledge, pledged revenues are projected to increase by approximately 60%, reaching $9.66 million in 2011, with coverage of level debt service ($4.82 million) remaining at approximately 2.0x through final bond maturity.

Positive Financial Performance

The district generated a positive operating margin of 3.3% in fiscal 2010. While this level of performance is somewhat below prior years, it is impressive given that state appropriations, the district's second largest funding source, have been flat to declining. Enrollment increases, in combination with increased fees, has helped lessen the impact of the appropriation reductions. Available funds, defined by Fitch as cash and investments not permanently restricted, totaled approximately $26.7 million (excluding unspent bond proceeds of $27.4 million). As a percentage of both operating expenditures and pro forma debt, fiscal 2010 available funds represented a sound 34% of operating expenditures and 23% of pro forma debt, respectively.

The district's pro forma debt burden (including outstanding combined fee revenue bonds and tax supported debt) remains high (8%), though is downward trending as a result of robust revenue growth over the past several years. The magnitude of the district's debt burden is additionally tempered by its ability to service debt carrying charges from annual surpluses versus unrestricted reserves.

Fairly Diverse Revenue Base

The district's revenue base is diversified, comprised primarily of student generated revenues, including Pell Grant funding (43%); ad valorem taxes (31%); and state appropriations (21%). Student contact hours grew at an average annual rate of approximately 2.5% since fiscal 2001 as demand for district program offerings fueled enrollment growth. Over the same time period, there has been growth in the assessed valuations within the district's three-county service area. Simultaneous with this issuance, the district will be issuing $43.275 million of maintenance tax notes that are secured by a pledge of the ad valorem taxes.

Fluctuations in State Aid

In recent years, state appropriations have declined. In fiscal 2009, appropriations were approximately $17.87 million, but slipped to $17.05 million in fiscal 2010 (5% decline) and another decline was realized in fiscal 2011 (7.5%). Similar reductions are expected in fiscals 2012 and 2013, and the district is managing these reductions through increases in tuition and fees; modest growth in headcount; and various budgetary reduction measures, including the consolidation of various departments and divisions and freezing of positions.

Long Established and Growing District

The district was founded in 1946 as Laredo Municipal Junior College, primarily to serve returning war veterans. The service area is coterminous with the boundaries of the city of Laredo and serves a three-county area - Webb, Jim Hogg and Zapata Counties. In 2010, total enrollment reached 25,748 and contact hours rose to 3.8 million, up from 19,354 and 3 million, in 2001, respectively. The district maintains two campuses: the original campus located on the Ft. McIntosh military base, and a second campus that opened in 2004, on the banks of the Rio Grande.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria' (July 14, 2011);

--'Revenue-Supported Rating Criteria' (June 20, 2011).

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

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CONTACT:

Fitch Ratings
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Media Relations, New York
sandro.scenga@fitchratings.com
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Primary Analyst:
Joanne Ferrigan, +1-212-908-0723
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
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Secondary Analyst:
Alex Vaisman, +1-212-908-0721
Analyst
or
Committee Chairperson
Douglas J. Kilcommons, +1-212-908-0470
Senior Director and Sector Head