Moody's Assigns Aa3 Ratings to Lockhart Independent School District's Proposed Bonds

Strategic Insights -

The Lockhart Independent School District in Texas has proposed $94 million in Unlimited Tax School Building Bonds, Series 2025, to fund various school infrastructure projects. Moody's Investors Service has assigned Aa3 underlying and Aaa enhanced ratings to these bonds, reflecting the district's growing economy, stable enrollment, and strong reserves. The district's total debt outstanding will be approximately $227 million following the issuance of these bonds.

Key Takeaways:

  • The Aa3 issuer rating reflects the district's growing economy, transitioning from agricultural to industrial and residential development, and stable enrollment growth of at least 2% annually over the next five years.
  • The district's resident incomes and full value per capita are below median for the rating category but will see growth as development and new homes are built within the area.
  • The issuer rating incorporates strong reserves, which will remain over 35% of operating revenues despite a planned use of reserves in fiscal 2025.
  • The district has elevated long-term liabilities, amounting to 368% of operating revenue, which will remain high given slow amortization and the need for additional debt as enrollment grows.
  • The Aa3 rating assigned to the GOULT bonds is equivalent to the Aa3 issuer rating, given an unlimited property tax pledge that is dedicated for debt service and levied upon all taxable property within the district.
  • The Aaa enhanced rating is based on the rating of the Texas Permanent School Fund (PSF) and the structure and legal protections of the transaction, which provide for timely payment by the PSF if necessary.
  • Moody's currently rates the Texas Permanent School Fund Aaa stable.
  • Factors that could lead to an upgrade of the ratings include an increase in resident incomes and full value per capita, material decrease in leverage to below 250% of operating revenue, and not applicable enhancement.
  • Factors that could lead to a downgrade of the ratings include significant increase in leverage absent corresponding tax base and/or revenue growth above 400% of revenue, material decline in reserves to below 25% of operating revenue, and rating downgrade of the Texas Permanent School Fund (enhanced).

Statistics:

  • Moody's has assigned Aa3 underlying and Aaa enhanced ratings to Lockhart Independent School District's proposed $94 million Unlimited Tax School Building Bonds, Series 2025.
  • The district's total debt outstanding will be approximately $227 million after the issuance of these bonds.
  • Enrollment in the district is projected to grow by at least 2% annually over the next five years.
  • The district's resident incomes and full value per capita are below median for the rating category.
  • The district has elevated long-term liabilities, amounting to 368% of operating revenue.
  • The Aaa enhanced rating is based on the rating of the Texas Permanent School Fund (PSF), which is currently rated Aaa stable.

Sources:

  • Moody's Ratings (Moody's) news release, available at [www.moodys.com](http://www.moodys.com)
  • US K-12 Public School Districts methodology, published in July 2024 and available at https://ratings.moodys.com/rmc-documents/425431
  • Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology, published in July 2022 and available at https://ratings.moodys.com/rmc-documents/386295
  • Rating Methodologies page on https://ratings.moodys.com