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Mercedes Independent School District, TX General Obligation Debt Rating Lowered To ‘A-‘; Outlook Is Stable

          CENTENNIAL (S&P Global Ratings) June 13, 2018--S&P Global Ratings has lowered its underlying rating to 'A-' from 'A' on Mercedes Independent School District (ISD), Texas' general obligation (GO) debt. The outlook is stable.
          "The downgrade reflects sustained drawdowns on fund balances since fiscal year 2014, combined with weak economic metrics that are not commensurate with those of higher-rated peers," said S&P Global Ratings credit analyst Alex Louie. 
          We note that the district expects a surplus in fiscal year 2018, but a tight budget year in fiscal 2019. 
          Mercedes ISD is located in Hidalgo County, about 20 miles east of McAllen, and five miles north of the Mexican border. Due to its proximity to the border, the local area economy centers around international trade and ancillary services.
          The stable outlook reflects our view that the district is making changes to rebuild fund balances, due to an effort to control expenditures and a voter approved maintenance and operations tax levy increase in 2017. Therefore, we do not expect to change the rating within our two-year outlook window. 
          If Mercedes ISD's fiscal 2018 audit is comparable with management's current estimates, the district is able increase fund balances to levels that we consider good (8% of expenditures) in subsequent years, and if AV continues to increase we could raise the rating, all other factors held equal. 
          If the district's fund balances decrease below levels that we consider adequate (1% of expenditures), we could lower the rating. 
          Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.