Fitch Rates Texas Southmost College District, Texas GOs 'AA-'; Outlook Stable

AUSTIN, Texas--(Business Wire)--
Fitch Ratings has assigned an 'AA-' rating to Texas Southmost College District,
Texas' (TSC or the district) $4 million limited tax bonds, series 2009 and $3
million maintenance tax notes, series 2009. In addition, Fitch affirms the 'AA-'
rating on the district's approximately $61 million outstanding general
obligation (GO) bonds and $12 million maintenance tax notes. The Rating Outlook
is Stable.

Scheduled for a negotiated sale on June 18, 2009, the bonds and notes are direct
obligations of the district, payable from an ad valorem tax levied against all
taxable property within the district. The tax notes are subject to the
district's $0.35 per $100 taxable assessed valuation (TAV) limit for maintenance
and operations, while the GO bonds are subject to a separate limit of $0.50 per
$100 TAV. Bond proceeds will be used to renovate existing facilities, construct
and equip buildings and pay costs of issuance.

The 'AA-' rating is based on the district's low direct debt levels with
below-average amortization, enrollment growth levels that have recently dipped
but remain strong overall, healthy tax base growth, and the continued
maintenance of satisfactory finances. The district's ample local maintenance
taxing margin provides added financial flexibility. Also considered in the
rating are operational and financial pressures stemming from overall enrollment
growth as well as the area's low wealth levels, which heighten sensitivity to
tuition and property tax increases. However, through its long-term partnership
with the University of Texas-Brownsville (UT-B), Fitch believes the district is
well-positioned to meet these financial and operational challenges. Prospects
for ongoing enrollment and economic growth in the district's service area appear
promising.

The district is a two-year comprehensive, open-enrollment community college
operating jointly with UT-B. Located in Brownsville, Texas near the U.S.-Mexico
border, the district was originally founded in 1926 and became independent and
was renamed in 1949. In 2005, the district changed its name to Texas Southmost
College District. The district encompasses approximately 530 square miles in the
eastern portion of Cameron County and includes all of Los Fresnos, Brownsville
and Port Isabel Independent School Districts. Population growth trends in this
area continue to exceed those of the state and nation. The majority of TSC
students are from the local area within the district's boundaries, and in recent
years, the district has experienced strong enrollment growth from area high
school students in dual enrollment programs. However, as previously projected,
headcount enrollment and semester credit hours (which determine the level of
state funding) declined in Fall 2008 for non dual enrollment students from prior
years' substantial annual growth rates. TSC officials attribute this decline to
the implementation of minimum academic progress standards that should ultimately
improve the district's transfer and graduation rates and believe the full effect
of these related enrollment declines has been reached.

TSC benefits from a relatively diverse revenue stream, supported primarily by
tuition and fees at 41% of total revenues in fiscal 2008, as well as state
appropriations and property taxes. State appropriations rose slightly in fiscal
2008. Tax base growth remains healthy, averaging approximately 9% annually over
the past five years, although comparable to national trends, preliminary
estimates for fiscal 2010 TAV growth are more modest. Growth in taxable
resources has enabled the district to maintain a low and stable maintenance tax
rate. Despite declining rates of tuition discounting and tuition and implemented
increases, tuition and fees remain very affordable compared to other parts of
the country and in relation to TSC's closest competitors.

Although a direct comparison of fiscal years 2004-2008 results with prior year
performance is difficult due to the change in reporting format associated with
the partnership with UT-B, the district has recorded essentially break-even or
better operating results. In fiscal 2008, the operating margin was slightly
better than the previous two fiscal years at approximately 14% and at an
increased level totaling $9.4 million of non-restricted cash and investments,
liquidity improved as well. District officials report that the fiscal 2009
budget (adopted as balanced) remains on target and anticipate closing fiscal
2009 with a slight surplus.

The current bond offering represents the final borrowing from a $68 million GO
bond authorization approved by voters in 2004 that was designed to meet capacity
needs and expand programs. Prior to this authorization, the district had very
little GO debt outstanding. The tax notes will fund maintenance and renovation
of existing district facilities. TSC also has approximately $28 million in
outstanding revenue debt supported by various student use fees. While the 2004
authorization is currently exhausted, district officials do not anticipate
approaching voters for another authorization over the near term, indicating that
similar to previous years, additional maintenance tax notes may be issued to
address the most critical deferred maintenance needs.

This issuance is expected to minimally impact the debt service tax rate. Direct
debt ratios remain low, with overall ratios increasing to moderately high
levels, reflecting substantial issuances by the city of Brownsville (GO debt
rated 'A+' with a Positive Outlook by Fitch) and the Brownsville Independent
School District (underlying GO bond rating of 'AA-' by Fitch). Amortization
remains somewhat below average, with about 43% repaid in 10 years.

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
Rebecca Moses, +1-512-215-3739 (Austin)
Jose Acosta, +1-512-215-3726 (Austin)
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com

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