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Moody's Investors Service Inc.

Moody's Assigns Aa1 Underlying Rating to Tomball Independent School District's Unlimited Tax School Building Bonds, Series 2025

Strategic Insights

— 1 min read

Moody's Investors Service has assigned an Aa1 underlying rating to Tomball Independent School District's Unlimited Tax School Building Bonds, Series 2025, with a proposed par amount of $191.4 million. The district's outstanding general obligation unlimited tax (GOULT) debt will total approximately $1.1 billion post-sale, with a stable outlook on the issuer and underlying ratings. The strong economy in the Houston metropolitan area, leading to enrollment growth, and high adjusted resident income support the rating. However, high leverage and slow principal amortization are concerns.

Key Takeaways:

  • The district's economy in the Houston metropolitan area has led to strong enrollment growth, averaging 4% annually over the past three years.
  • The district projects enrollment will continue to grow, albeit at a slower pace of 1-2% annually.
  • High adjusted resident income, over 150% of the US average, and a full value per capita of close to $190,000 support the rating.
  • The district has maintained general fund reserves of 50% for several years, including for fiscal 2025 (projected), and projects a balanced fiscal 2026 general fund budget.
  • Leverage is high for the rating category and will remain so given slow principal amortization and the need for additional authorized debt to accommodate growing enrollment.
  • The long-term liabilities ratio will be about 480% post-sale, and fixed costs will increase to just over 30%.
  • The Aaa enhanced rating is based on the rating of the Texas Permanent School Fund, which is Aaa stable, and the structure and legal protections of the transaction.
  • The stable outlook on the issuer and underlying ratings reflects the expectation that the financial profile will remain stable while enhanced revenue from tax base growth and increased enrollment will support the high but manageable leverage and fixed costs.

Statistics:

  • $191.4 million: proposed par amount of the Unlimited Tax School Building Bonds, Series 2025
  • $1.1 billion: total outstanding GOULT debt post-sale
  • 50%: general fund reserves maintained by the district for several years, including for fiscal 2025 (projected)
  • 480%: long-term liabilities ratio post-sale
  • 30%: fixed costs as a percentage of revenue post-sale

Sources:

  • Moody's Investor Service, "Tomball Independent School District, TX: Rating Action Update" (July 2024)
  • Moody's Investor Service, "US K-12 Public School Districts" (July 2024)
  • Moody's Investor Service, "Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology" (July 2022)

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