Fitch Rates Lewisville, Texas GO Bonds 'AA'; Outlook Revised to Positive

Fitch Rates Lewisville, Texas GO Bonds 'AA'; Outlook Revised to Positive

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the City of Lewisville, Texas' (the city) $8.85 million general obligation (GO) bonds, series 2008. Additionally, Fitch affirms the 'AA' rating to the city's $59.5 million outstanding GO bonds and $45.2 million outstanding certificates of obligation. The bonds are scheduled to be sold via negotiated offering the week of May 19. The Rating Outlook is revised to Positive from Stable.

The bonds are secured by a continuing direct ad valorem tax levied against all taxable property within the city, subject to a $2.50 per $100 taxable assessed valuation (TAV) limitation prescribed by law. Bond proceeds will be used to finance street and drainage improvements to Westwood Estates (Phase 2) and to reimburse the general fund for street and drainage improvements to Railroad Street.

The 'AA' rating reflects the city's favorable financial profile, moderate direct debt position, and a stable and fairly diversified local economy. The Outlook revision is the result of strong commercial development activity over the past 12-18 months as the city has succeeded in attracting new businesses and retail and multifamily residential projects. Operating reserve levels also continue to grow. A high overall debt level, principally driven by Lewisville Independent School District (ISD, GO debt rated 'AA' by Fitch) is an additional rating consideration. Fitch views the strength of the city's financial management and the demonstrated commitment to conservative budgeting practices and policies key factors in the rating assignment.

The city's tax base, which recorded healthy annual gains during Lewisville's rapid growth period over the past several decades, has posted increases over the past five fiscal years averaging 5.4% annually, including a 13% gain for fiscal 2008; the current TAV is $6.2 billion. The planned widening of Interstate Highway (IH) 35 through Lewisville and construction of a light rail system that will feature three Lewisville stations and tie into the Dallas Area Rapid Transit (DART) system have begun to spur additional commercial development in the city. In addition, the city has attracted some large companies to Lewisville such as Fidelity Investments and 21st Century Insurance with active tax incentive agreements. As these agreements roll off in future years the city should benefit from a TAV boost.

General fund spending has increased a manageable 5%-6% annually since fiscal 2002, enabling the city to maintain healthy reserve levels while holding the property tax rate steady. The unreserved general fund balance at fiscal 2007 year-end was $26.3 million or a sizeable 43% of spending and transfers out. These results marked the fifth consecutive fiscal year with net income and increasing reserves.

Sales tax receipts have registered average annual gains of almost 5% over the past three fiscal years. Sales tax and property tax revenues each comprise roughly 33% of total general fund revenues typically, with other fees and charges generating the remaining one-third of operating revenues. Liquidity has improved steadily since fiscal 2002; general fund cash and investments have increased each year during this period and at fiscal 2007 year-end totaled more than $23 million.

Projected fiscal 2008 results suggest an increase in the total general fund balance to $28 million, or a $1.2 million increase (after transfers related to one-time capital projects); sales tax receipts are projected to be flat for the year at approximately $19 million. Both of these results will exceed original budget projections.

Lewisville's direct debt position remains moderate, although the overall debt burden is well above average due to Lewisville ISD's ongoing borrowings. Debt service as a percentage of operating expenditures is average at roughly 15%, and principal amortization is above average at nearly 63% in 10 years. The city's debt position also benefits from annual general fund transfers to capital projects; Lewisville maintains a policy of transferring a sizable amount of surplus revenues, primarily for street and drainage improvements. Following this sale, the city will have $28.7 million remaining from previous authorizations; planned GO debt offerings totaling $10.0 million over the next two years appear manageable and likely will have little or no impact on the debt service tax rate.

Lewisville is located northwest of Dallas along IH 35 East, lying in parts of Dallas and Denton counties in the Dallas-Fort Worth metro-plex. The estimated city population for 2008 is approximately 92,900. The city is home to various manufacturing, distribution, and service concerns. Commercial development activity spiked in 2006 and 2007, and development is expected to continue in the areas surrounding three planned light-rail stations in the city as well as in the redeveloped old downtown area. Construction on the light-rail system, which will tie into DART in nearby Carrollton, is expected to begin in 2010 and be completed by 2013. Expansion of IH 35 is expected to be completed in the same timeframe. Local unemployment rates historically have been lower than regional, state and national averages. The city's most recent monthly unemployment rate was 3.6% (May, 2008).

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