Bond Buyer: Austin Community College gets upgrade ahead of deal

By: Richard Williamson

Austin Community College District's spendable cash and investments have nearly doubled since fiscal 2014, a factor in Moody’s Investors Service upgrade of the credit to Aa3 from A1 in advance of a $35 million bond issue.

“Over the last three years, operating performance has continued to strengthen, with average operating cash flow margins of nearly 19% from fiscal 2016-18,” analyst Edna Castaneda wrote in a report Tuesday.

S&P Global Ratings affirmed its equivalent AA-minus rating and stable outlook.

“The district's financial operations remain strong, with fiscal 2018 posting a significant surplus, and management expects another full-accrual operating surplus in fiscal 2019, driven by better than expected property tax revenue,” S&P analyst Robert Tu wrote. “While financial resource ratios are weak, given the district's high overall debt load, we expect gradual improvement, given its positive operations and lack of additional revenue debt plans.”

The district is the largest provider of open access two-year public higher education and workforce development in the booming Austin-Round Rock metropolitan area. ACC enrolled 41,000 students across 11 campuses in 2018.

The district has seen robust growth of property tax income, which represents nearly 55% of fiscal 2018 operating revenue, per Moody’s.

“Offsetting challenges include elevated non-tax supported leverage relative to similarly rated community colleges as well as execution risk associated with continued campus expansion and capital improvements,” Castaneda said.

The district has about $164 million of outstanding revenue bonds. The upcoming bonds are backed by a student general fee, 25% of all tuition fees collected, and all interest income of the district. Property tax revenue and state appropriations are not included in the pledge.

Additional bondholder security features include a cash funded debt service reserve and a 1.25x gross debt service coverage requirement, Moody’s noted. Fiscal 2018 pledged revenues of $28.1 million cover pro forma maximum annual debt service by 1.6x.

Proceeds from the proposed Series 2019 bonds will be used to acquire the district's Elgin campus from the Austin Community College District Public Facility Corporation and defease lease revenue bonds, Taxable Series 2010A as well as to pay costs of issuance.