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The takeover of the Houston Independent School District by the Texas Education Agency (TEA) on the basis of academic performance does not affect its AA-plus underlying rating, S&P Global Ratings analysts said Friday.

The TEA said Wednesday the largest public school district in Texas will be run by a state-appointed board of managers and superintendent as an intervention action starting June 1. 

The rating agency took into consideration Houston’s economic strength and the district’s “very strong reserves,” as well as assurances from the district that day-to-day operations will not be impacted by the takeover, according to Katy Vazquez, an S&P analyst.

“Things seem to be relatively stable there,” she said. “We just don’t feel at this time that this is going to affect the rating. Obviously, we’re going to continue to monitor it.”

In a bulletin late Thursday, S&P said, “although a state takeover for governance reasons usually means challenges in academic performance or internal processes, it does not necessarily indicate a weakening of overall creditworthiness.”  It added a rating action is more likely when financial issues lead to the takeover of a school district.

Houston ISD, which had $2.4 billion of bonds outstanding as of June 30, also has an underlying issuer rating of Aaa from Moody’s Investors Service. Both rating agencies assign triple-A ratings to the district’s bonds sold through the Texas Permanent School Fund’s guarantee program

Moody’s analysts had no immediate comment on the takeover. 

The Texas Supreme Court in January vacated a lower court’s injunction preventing a TEA  takeover of the district initiated in 2019. The ruling cleared the way for TEA’s latest move, which was met with protests from state and local officials.

The district, the eighth largest in the nation, serves more than 194,600 students, more than 60% of whom are Hispanic, in 274 schools.

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