KBRA assigns a long-term rating of AA- to the Canutillo Independent School District (the District), Texas, Unlimited Tax School and Building and Refunding Bonds, Series 2026 (the 2026 Bonds). Concurrently, KBRA affirms the AA- rating for the District's outstanding unlimited tax bonds. The Outlook is Stable.

Proceeds of the 2026 Bonds will finance the construction of school facilities, refinance certain outstanding Bonds of the District, and fund the costs of issuance. The 2026 Bonds are payable from a direct and continuing pledge of ad valorem taxes levied on all taxable property within the District, without limitation as to rate or amount. The Bonds are expected to be guaranteed by the State’s Permanent School Fund (PSF) guarantee program for the full and timely payment of principal and interest. KBRA’s rating for the Bonds is based solely on the underlying credit standing of the District without consideration of the support afforded by the PSF guarantee program.

Key Credit Considerations

Credit Positives

• Strong growth in population and tax base valuation due to strategic location along the Interstate 10 corridor.
• Sound level of reserves, with an unassigned fund balance ratio of 12.9% as of FYE 2025.
• Experienced management, coupled with sound polices to guide the District through current financial challenges.

Credit Challenges

• Stagnant enrollment and strong competition from neighboring districts; competitive pressure may increase following implementation of Texas’ private school voucher program.
• Recent operating deficits resulting from increasing expenditures and state funding restrictions which limit a school district’s ability to generate new revenues.
• An already high, and increasing debt burden, as the District implements a multi-year capital program to relocate and reconstruct its aging school infrastructure.

Rating Sensitivities

For Upgrade

• Restoration and maintenance of operating surpluses through increasing enrollment and related generation of revenues through the state’s per student funding formula.
• Growth in reserves to a level that is consistently above the District’s expenditures policy target.

For Downgrade

• Continued trend in operating deficits resulting in unassigned reserves falling materially below current levels.
• Increased reliance on nonrecurring revenues in lieu of enrollment driven, state school funding to achieve structural balance.
• Issuance of additional debt beyond current authorization as a result of a significant increase in costs associated with implementation of the current capital plan.

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Methodology

• Public Finance: U.S. Local Government General Obligation Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.

Doc ID: 1014646

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