Moody's affirms Texas Permanent School Fund's Aaa rating.

DALLAS -- Moody's Investors Service this week confirmed the Aaa rating on the claims-paying ability of the Texas Permanent School Fund, which guarantees about $6.6 billion of outstanding debt for almost 450 school districts in the state.

"This confirmation stems not only from the Permanent School Fund's exceptionally strong fiscal position, but also from Moody's analytic review of the 438 school districts whose debt is guaranteed by [the fund] and rated by Moody's," according to a lengthy report released Tuesday by the New York City rating agency.

Moody's analysis of individual school credits reveals that almost 75% of the debt guaranteed is between A and Aa and that no school district with debt guaranteed by the school fund has defaulted. Most of the remaining 25% is rated Baa, the lowest investment grade, with only five districts in the Ba, or junk bond, category.

In addition, Moody's said the fund is well capitalized and is the largest of its type, with a book value of $8.9 billion and a market value of $11.1 billion. The ratio of debt outstanding to total book value of the Permanent School Fund equals 0.75 to 1, well below the state's legal limit of 2 to 1, the rating agency said.

The fund has a diversified investment portfolio that is well balanced between fixed-income and equity investments, which provides for good earnings potential and limits exposure, Moody's said.

In addition, the rating agency said that revenues earned from royalties on the sale of oil and natural gas, land easements, and capital gains provide the fund with a steady stream of new money, although that revenue source has declined since the oil bust in the mid-1980s. Overall, the book value of total assets has grown 23.6%, to $8.9 billion through June 30, 1994, from $7.2 billion in 1990.

Chris Evangel, Moody's vice president and supervisor of the Southwest region, said legal challenges to the constitutionality of the share-the-wealth school finance law and legislative action to shift construction money from rich to poor districts could affect ratings in the future.

"But we don't know a definitive direction until later," Evangel said. The state legislature won't consider bills to revise school spending until it convenes in January, and the Texas Supreme Court is expected to rule soon on the constitutionality of the so-called Robin Hood school finance law.

Treasury Market Yields Previous Previous Wednesday Week Month3-Month Bill 5.08 4.61 4.636-Month Bill 5.59 5.36 5.041-Year Bill 6.06 6.84 5.542-Year Note 6.70 6.50 6.193-Year Note 7.01 6.78 6.485-Year Note 7.42 7.20 6.887-Year Note 7.58 7.40 7.0710-Year Note 7.74 7.57 7.2730-Year Bond 7.94 7.81 7.56

Source: Cantor, Fitzgerald / Telerate

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