2008-08-11 23:53:03 -

- Fitch Ratings has assigned an 'AAA' rating to the Beaumont Independent School District, Texas' (the district) $65 million unlimited tax school building bonds, series 2008A. The 'AAA' rating is based on the guarantee provided by the Texas Permanent School Fund (PSF; insurer financial strength rated 'AAA' by Fitch). In addition, Fitch has assigned an underlying 'AA-' rating to the

series 2008A bonds, which are expected to sell during the week of Aug. 11 via negotiated sale. Fitch has also assigned an 'AA-' underlying rating to the district's approximately $125.6 million in outstanding unlimited tax bonds. The Rating Outlook is Stable.

The bonds are payable from an unlimited property tax levied against all taxable property within the district. Bond proceeds will be used to finance the construction of new schools and facilities, renovation and expansion of existing facilities, and site acquisitions.

The underlying 'AA-' rating reflects the district's stable financial performance despite erratic enrollment trends, moderate debt levels, and solid tax base growth. Also considered in the rating are the district's high tax and employment base concentration and slow principal pay out rate. Notable district-wide campus improvements may help stabilize the district's declining enrollment base. However, continued conservative budgeting of average daily attendance (ADA) projections will remain key to avoiding structural imbalances in the district's financial performance. The district's property-rich status precludes it from receiving any state support for its bond programs. However, a very large planned industrial addition to the district's tax base will help mitigate the tax rate impact of its large capital plan.

The district includes the City of Beaumont, a major commercial and industrial center in the 'Golden Triangle' of Southeast Texas that also includes Port Arthur and Orange. The district's enrollment declined by 1,000 students or 5% over a two year period due to damage from Hurricane Rita in 2005. Building permits surged in 2006 and 2007 due to housing stock repairs and replacement.

The district is characterized by high petrochemical and refining concentration, led by ExxonMobil which comprises a high 23% of the district's tax base. However, there is some diversity between upstream (oil exploration and refining) and downstream users (chemical manufacturing) that helps stabilize the impact of oil price swings. Additionally, oil refineries' key role in the national economy mitigates the credit concern over their long-term prospects.

The current offering represents the second installment of the $386 million authorization approved by 57% of voters in Nov. 2007. The bond program will fund nine new elementary schools and one middle school, a multi-purpose student center, and district-wide campus improvements and additions. Due to the advanced age of its schools and population shifts within the district, the bond program has been designed to replace or consolidate eight existing schools. The projected tax rate impact totals almost $0.19 per $100 TAV. Given the low existing rate of under $0.06 per 100 TAV, the total tax rate will still be low to moderate. Such projections include a $1 billion tax base boost in fiscal 2009 due to the planned construction of $1.6 billion industrial gasification plant by Eastman Chemical Co. (IDR rated 'BBB' by Fitch). The project is estimated to generate 1,300 construction jobs and 250 permanent jobs.

The district has a history of solid and steady reserves at or above its fund balance goal of 12% (1.5 months) of spending, posting general fund surpluses in each of the last five fiscal years. Fiscal 2007's unreserved fund balance totaled a strong $31.1 million or 20.7% of spending with liquidity exceeding three months of operating expenditures. The fiscal 2008 budget was adopted as balanced despite a modest projected enrollment decline. Although the district became a property-rich district in fiscal 2008, its recapture payment to the state was modest. The proposed fiscal 2009 budget is balanced based on level enrollment and a flat O&M tax levy of $1.04 per $100 TAV.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, Austin
Jose Acosta, 512-215-3726
Rebecca Moses, 512-215-3739
or
Media Relations:
Cindy Stoller, 212-908-0526, New York