Feb 7 - Fitch Ratings has affirmed the following outstanding bonds for Frisco Independent School District, Texas (the district): --$884.6 million (on a non-accreted basis) unlimited tax (ULT) bonds at 'AA-'. The Rating Outlook is Stable. SECURITY The bonds are secured by an unlimited ad valorem tax pledge against all taxable property within the district. SENSITIVITY/RATING DRIVERS RAPID GROWTH: Enrollment has quadrupled since the 2000 census as residential growth expanded northward from Dallas, making the district one of the fastest growing in Texas. The largely residential tax base grew commensurate with enrollment before slowing in the past several years. HIGH DEBT LEVELS: Ongoing facility requirements are expected to keep the district's debt levels high over the mid-term based on enrollment growth projections which outpace expected TAV gains. Carrying costs, including annual debt service, pension and other post-employment benefits (OPEB), are manageable. WELL-MANAGED FINANCES: The district's financial profile is characterized by conservative budgeting, consistent financial performance, and ample reserves. FAVORABLE DEMOGRAPHIC PROFILE: Unemployment and income trends are strong compared to state and national averages. Population, currently at about 170,000, has grown rapidly. Rating Sensitivities CHANGE IN LEVEL OF FLEXIBILTY: Maintenance of a strong financial profile during the district's build-out and continued ability to affordably address capital needs could lead to positive rating action. Material diminishment of reserves or inability to meet capital needs could lead to negative rating action. CREDIT PROFILE Frisco ISD encompasses 75 square miles in Collin and Denton Countes, about 20 miles north of Dallas, and includes the city of Frisco as well as portions of McKinney, Little Elm, Hackberry, and Plano. LARGE DALLAS METRO DISTRICT Extensive residential development has driven strong tax base gains averaging over 15% annually in the nine years leading up to fiscal 2009. TAV dipped 1.8% in fiscal 2009 before recovering with modest 3.7% and 5.2% gains in fiscal 2012 and 2013 respectively. Residential properties comprise 68% of the fiscal 2013 TAV of $18.4 billion. Officials anticipate annual TAV growth of 2.5% to 3% in the near term based on growth currently underway in the Phillips Creek Ranch and Lawler Park developments as well as continuing commercial development along Preston Road and the Dallas Toll way. Fitch believes this is reasonable given the recent trend improvement in TAV. The tax base is diverse and without taxpayer or sector concentration. Fiscal 2013 enrollment of approximately 43,000 is estimated by the district's demographers to top out at 65,000 to 70,000 within the next 10 years. Officials expect 6% annual enrollment gains over the near term before leveling off closer to build-out. This is consistent with the recent trend of rapid, but slowing, annual enrollment increases, declining from 15.2% in fiscal 2008 to 6.6% in fiscal 2012. The district retains a strong academic standing and its location and major transportation corridors provide access to Dallas and nearby Plano employment markets. Unemployment is below regional, state and national averages. The district's median household income is a high 190% of the national average. CONSISTENT FINANCIAL PERFORMANCE The district generated favorable financial performance in four of the past five years, building the fiscal 2012 unrestricted general fund balance to $60 million, or a sound 21% of expenditures and transfers out. The fiscal 2012 net surplus of $17.2 million (6% of expenditures and transfers out) reflects instructional and support service cost savings, EduJob monies and enrollment-based revenue growth which offset $18 million in state funding cuts. Officials anticipate a modest addition to fiscal 2013 reserves through continued cost management despite a second year of state funding losses. The fiscal 2013 budget reflects a maintenance and operation (M&O) tax rate increase of 4 cents to $1.04 per $100 of TAV. Officials do not anticipate seeking additional M&O rate adjustments through a tax ratification election in the immediate future. HIGH DEBT / MANAGEABLE CARRYING COSTS Elevated overall debt of $10,276 per capita or 8.6% of market value has remained stable over the recent past as debt issuance moved in tandem with population and tax base growth. Amortization is below average at 26.9% in 10 years. The district has used a moderate amount of capital appreciation bonds (CABs). Fitch would view negatively an increase in the proportion of CABs to total debt. Officials indicate the potential to seek voted GO authorization as early as 2014 to fund improvements and facility needs. The district's fiscal 2013 interest and sinking (I&S) fund tax rate of $.42 per $100 of TAV provides modest capacity in relation to the statutory cap of $.50 for new debt issuance and has benefited from TAV growth and use of debt servicefunds to maintain the current rate. The district anticipates the I&S tax rate could reach the statutory cap within the next four years, assuming continued moderate TAV growth. Fitch will monitor the district's debt and tax rate position for additional stress. Management's ability to generate additional needed classroom capacity with shrinking debt flexibility will be a key credit consideration. The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple employer defined benefit pension plan; other-post employment benefits (TRS-Care) are also provided through TRS. The combined pension and OPEB contributions, which are set by state law, totaled $4.8 million, or a low 1.2% of governmental spending in fiscal 2012. Offsetting the low post-retirement costs is the high level of debt service, despite slow amortization. The district's carrying costs, including debt service, pension and OPEB comprised a moderate 21.4% of governmental fund spending for fiscal 2011.