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

Strategic Insights -

Sherman Independent School District (ISD) in Texas has received a positive credit review from Moody's Investors Service, which has assigned Aa3 underlying and Aaa enhanced ratings to the district's proposed $227 million Unlimited Tax School Building Bonds, Series 2025. The affirmation of the district's Aa3 issuer rating and the Aa3 ratings on its outstanding general obligation unlimited tax (GOULT) bonds reflect the district's strong financial position and growing local economy. The district's financial position is expected to remain strong despite a planned use of general fund reserves in fiscal 2025.

Key Takeaways:

  • Moody's assigned Aa3 underlying and Aaa enhanced ratings to Sherman ISD's proposed $227 million Unlimited Tax School Building Bonds, Series 2025.
  • The district's Aa3 issuer rating reflects the growing local economy, with significant concentration from Texas Instruments, which accounts for 21% of the total tax base.
  • Enrollment growth has been stable over the past three years and is expected to increase in the coming years due to ongoing residential development.
  • The financial position will remain strong despite a planned use of general fund reserves in fiscal 2025, with an increase in state funding that will drive balanced operations in fiscal 2026.
  • Long-term liabilities are high at 646% of revenues and are expected to remain elevated given slow amortization and future issuance plans.
  • 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.
  • The stable outlook reflects the expectation that sound financial management practices coupled with a growing local economy will continue to support stable credit fundamentals.
  • Factors that could lead to an upgrade of the ratings include a decline in long-term liabilities, material reserve increases, and a material increase in state funding.

Statistics:

  • $227 million: proposed amount of the Unlimited Tax School Building Bonds, Series 2025.
  • 21%: concentration of tax base from Texas Instruments.
  • 7,800: number of students provided with public K-12 education.
  • 35%: operating reserves as a percentage of operating revenues.
  • 646%: long-term liabilities as a percentage of revenues.
  • Aaa: rating of the Texas Permanent School Fund.

Sources:

  • Moody's, "Moody's Assigns Aa3 Ratings to Sherman Independent School District, TX's Proposed $227 Million Unlimited Tax School Building Bonds, Series 2025"
  • Moody's Investor Service, "Moody's Ratings (Moody's) has assigned Aa3 underlying and Aaa enhanced ratings to Sherman Independent School District, TX's proposed $227 million Unlimited Tax School Building Bonds, Series 2025."
  • Moody's, "US K-12 Public School Districts" methodology, published in July 2024.
  • Moody's, "Guarantees, Letters of Credit and Other Forms of Credit Substitution Methodology" methodology, published in July 2022.