Moody's Assigns Aaa Rating to Houston Independent School District's Maintenance Tax Notes

Strategic Insights -

Moody's Investors Service has assigned a Aaa underlying rating to Houston Independent School District, TX's Maintenance Tax Notes, Series 2025A in the approximate par amount of $113 million. The agency maintains the Aaa underlying ratings on the district's issuer rating and outstanding general obligation limited tax (GOLT) debt, totaling roughly $1.6 billion. The outlook on the issuer rating and underlying bonds is stable.

The Aaa issuer rating reflects the district's massive economy with sizeable enrollment, despite a 12% decline since fiscal 2020. The district has supported a historically strong and stable financial position through necessary budget adjustments, with financial reserves softening from 50% of operating revenue in fiscal 2022 to just over 35% by the end of fiscal 2025. Despite recent draws, including a sizable one in fiscal 2025, reserve levels remain solid and in line with peers.

Key Takeaways:

  • Moody's assigned a Aaa underlying rating to Houston Independent School District's Maintenance Tax Notes, Series 2025A, with a par amount of $113 million.
  • The district's Aaa issuer rating reflects its massive economy, sizeable enrollment, and historically strong and stable financial position.
  • The district's financial reserves will soften from 50% of operating revenue in fiscal 2022 to just over 35% by the end of fiscal 2025, due to necessary budget adjustments.
  • The district's overall leverage is very modest at 160% of operating revenue, resulting in very manageable fixed costs of roughly 11% of operating revenue.
  • A deviation from the district's established history of prudent practices that causes reserves to meaningfully fall will negatively weigh on the credit.
  • The district remains under state control with a state-appointed conservator and superintendent.
  • Capital needs are large and will likely require debt issuance with voter authorization.

Statistics:

  • The total amount of GOLT debt is approximately $1.6 billion.
  • The district's enrollment is estimated at roughly 177,000 for fiscal 2025.
  • The district's financial reserves are projected to decrease from 50% of operating revenue in fiscal 2022 to just over 35% by the end of fiscal 2025.
  • The district's overall leverage is 160% of operating revenue, resulting in very manageable fixed costs of roughly 11% of operating revenue.
  • The district's budget adjustments have supported a historically strong and stable financial position.

Sources:

  • Moody's Ratings (Moody's) - Aaa underlying rating assignment
  • Moody's Investors Service - US K-12 Public School Districts methodology published in July 2024, available at https://ratings.moodys.com/rmc-documents/425431
  • Moody's Investors Service - Rating Methodologies page on https://ratings.moodys.com