Fitch Ratings has assigned an 'AAA' rating to the following Northwest Independent School District, Texas' (NISD or the district) bonds:

--$101.1 million unlimited tax (ULT) school building and refunding bonds, series 2012.

The 'AAA' long-term rating reflects the guaranty provided by the Texas Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA' by Fitch.

In addition, Fitch assigns an 'AA' underlying rating to the series 2012 bonds and affirms the 'AA' rating on the district's $600 million (pre-refunding) in outstanding ULT bonds.

The series 2012 bonds are scheduled to sell as early as May 30 via negotiation. Proceeds will be used to construct and renovate various school facilities, refund certain outstanding obligations for savings, and to pay related costs of issuance.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the district and are further secured by the PSF Guaranty.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE MAINTAINED: The district's financial profile, characterized by annual operating surpluses, healthy reserves, and sound management practices, remains notably strong despite the operating pressures from rapid enrollment growth and recent state funding cuts. A modest surplus is projected for fiscal 2012, adding further to fund balance.

MODEST TAX BASE GAINS CONTINUE: Preliminary fiscal 2013 taxable assessed valuations (TAV) is expected to register a modest increase, reflecting another year of residential and retail/commercial construction that has generally offset flat mineral values. This will be the second year of tax base gains following a modest contraction in fiscal 2011. Strong TAV growth has historically been driven by the district's proximity to the DFW metro area, availability of affordable land, and rising oil and gas values.

TAX BASE CONCENTRATION: Taxpayer concentration remains above average and highly concentrated in mineral reserves due to the district's location over portions of the Barnett Shale formation, one of the largest natural gas fields in the U.S.

HIGH DEBT BURDEN: The district's direct and overall debt levels are high, similar to other Texas districts that have experienced fast growth. Strong voter support for bond programs mitigates some of the debt concern. Annual debt carrying costs on the budget will remain high given the slow pace of amortization and ascending debt service schedule. However, the high fixed cost burden is tempered in part by the district's overall financial flexibility.

CREDIT PROFILE

ENROLLMENT GAINS REMAIN RELATIVELY RAPID

The district is located in the northwest part of the Dallas-Fort Worth (DFW) metropolitan area and encompasses 232 square miles that includes 16 rural communities in Denton, Tarrant, and Wise Counties. Local wealth levels are mixed, but generally better than state and national averages. The availability of affordable land within the district spurred residential development over the past several decades and boosted the district's enrollment to above 16,600 in fiscal 2012; the average annual growth rate has been a strong 10% since 2007. Current enrollment trends have moderately slightly but remain robust and in line with demographic projections according to management. Conservative estimates are for a 6% enrollment gain in fiscal 2013 that is likely to be exceeded. The district typically adds between 1,000-1,500 new students per year.

MODEST TAX BASE GAINS FOR SECOND CONSECUTIVE YEAR

The local economy is linked closely to that of the larger DFW metropolitan area and its major employment centers, since much of the district is within commuting distance. The DFW metro area economy fared relatively well during the recent recession. The area unemployment rate has consistently tracked better than the state (7.2%) and national (8.7%) rates, and the February 2012 rate of 6.2% was no exception.

Previously sizable growth in the district's tax base was boosted by its location over workable portions of the Barnett Shale field, one of the largest natural gas formations in the U.S. Rising mineral values coupled with rapid residential development led to about 15% annual TAV growth from fiscal 2005 - 2010, but weakness in both sectors caused a modest TAV decline in fiscal 2011. TAV regained its footing quickly with 5% growth in fiscal 2012. Preliminary information for fiscal 2013 indicates another 4% TAV gain, led by residential and retail/commercial development that served to offset much of the effect of lower natural gas prices. Taxpayer concentration is high at 27% (specifically in the oil and gas sector) and remains a credit concern. The list of the district's top taxpayers is led by Devon Energy Corp at a sizeable 13% (Fitch Long-term Issuer Default Rating 'BBB+' with a Stable Outlook).

FINANCIAL PROFILE IS A CREDIT POSITIVE

Financial performance has been strong historically, characterized by operating surpluses, healthy reserves, and sound management -- the latter of which has helped to navigate the operating pressures associated with rapid enrollment growth and large wealth equalization payments. Audited fiscal 2011 results were comparable to prior years with the district generating a very healthy $8.7 million operating surplus (roughly 6% of the year's operating expenditures) due in part to offsetting some general fund spending with the one-time use of $2.3 million in federal EduJobs funding. In addition, actual enrollment that typically outpaces conservatively budgeted projections benefited year-end results. Consequently, unrestricted general fund reserves at fiscal 2011 year-end rose to a solid $49.3 million or about 34% of spending. Further financial flexibility and added liquidity come from the maintenance of reserves outside the general fund: $34 million in transferred fund balance is undesignated within the capital projects fund and available for reallocation to the general fund as needed.

For fiscal 2012, the district addressed the year's state aid formula funding cuts (at about $8 million) primarily through expenditure reductions in staffing restructuring, transportation, and facilities operations; the board adopted a balanced operating budget of approximately $152 million. Year-to-date financial performance remains on track according to management; a modest surplus of about $2 - $3 million is currently anticipated. Spending cuts implemented for fiscal 2012 are projected to provide further savings in fiscal 2013 against the year's nearly $13 million state funding loss, allowing for the development of a structurally balanced budget without further major reductions. Use of roughly $2 million for staff pay raises from the discretionary $34 million outside the general fund is presently under consideration.

DEBT LEVELS TO REMAIN ELEVATED

Debt levels are high, especially on a per capita basis. Overall debt levels approximate $8,600 per capita and 6.3% of market value. Principal amortization is very slow at about 26% retired in 10 years. Annual carrying costs are also high at 20% of combined general fund and debt service spending in fiscal 2011. While the high debt burden is a credit concern, Fitch notes that the fixed cost burden is mitigated in part by the district's overall financial flexibility as reflected in ample reserves and tax rate cushion.

The refunding portion of this issuance is for economic savings, largely taken up front. The new money portion of this issuance is the next to final installment of a $260 million bond program approved by a strong 72% of voters in May 2008 for various new school facilities, renovation and technology needs. Current facility plans include management's judicious decision to increase the efficiency of nine existing elementary schools and expand their capacity. This move is expected to eliminate the need for two new elementary schools and reduce a potentially more sizeable impact on future operating budgets.

Voters were told to expect a level debt service tax rate of 33.5 cents per $100 TAV to support the entire 2008 authorization; in order to maintain this tax rate, management expects to use about $13 million in existing debt service fund balance over fiscal years 2012 - 2015 under what appears to be measured but slightly optimistic tax base growth assumptions in certain fiscal years. Officials plan to issue the remaining $50 million in 2008 authorization in 2013 and tentatively plan to seek roughly $200 million in additional GO bond authorization in May 2013, primarily for the construction of the district's third high school.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors, and Texas Municipal Advisory Council.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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