Fitch Ratings assigns a 'BBB' rating to Buffalo and Erie County Industrial Land Development Corporation's Enterprise Charter School (ECS) Project revenue bonds series 2011A and B:
--$6,500,000 tax exempt revenue bonds series 2011A;
--$300,000 taxable revenue bonds series 2011B.
At the same time, Fitch withdraws the 'BBB' rating on the series 2010A&B issuance of a similar par amount as the bonds were not sold.
The series 2011 bonds are expected to sell via negotiated sale on Feb. 9, 2011. Bond proceeds will be used to finance the purchase of currently leased school facilities, an addition of a modular gymnasium to the existing school campus and fund costs of issuance.
The Rating Outlook is stable.
RATING RATIONALE:
--The rating reflects strong demand, multiple charter renewals, substantial community and local school district backing and beneficial partnerships with third party agencies that complete the education and care continuum for the ECS student.
--ECS is purchasing currently leased space, thereby reducing its operating costs, offsetting incurred debt service charges and improving liquidity. No additional growth is required to service debt.
--A relatively low debt burden, positive operating margins and growing liquidity levels demonstrate fiscal adequacy and support the 'BBB' rating for ECS.
--ECS provides instruction to an inner city population and will continue to be challenged by a student demographic whose overall performance will typically be weaker than the state student population.
KEY RATING DRIVERS:
--Maintenance of positive operating margins through enrollment stability and operational efficiencies to gradually improve balance sheet resource levels.
--Continue improving student academic test scores; maintain 'in good standing' grade in regard to adequate yearly progress (AYP) metrics.
--Focus on strong operational and financial management practices and adherence to instituted policy and procedure.
SECURITY:
The bonds are secured by a pledge of general revenues of ECS, a first mortgage lien on the facilities of ECS, assignments of rents and leases receivable and a cash funded debt service reserve fund.
CREDIT SUMMARY:
ECS provides K-8 education to approximately 405 children in the city of Buffalo, NY. ECS received its charter in March of 2003. The only charter school authorized by a local school district in the state, ECS was conceived within the Buffalo Board of Education (BBE) as a means to show the efficacy of an alternative model of education delivery.
ECS enjoys strong demand and a healthy waiting list of students who have to re-apply every year and are picked by lottery. ECS enrollment totaled 405 students for the 2008 and 2009 school year.
Roughly 95% of the students are eligible for free and reduced lunch. ECS plans on maintaining K-8 instruction but may increase classes for each grade level in the future. The general trend for most charter schools is to enroll students at the kindergarten and first grade levels so as to create a well-prepared student as they progress through elementary and middle grades to high school.
While charter schools typically operate under tighter financial and resource constraints deriving a smaller portion or per student expenditures, ECS operations are stronger than the general complement of charter schools of the same size, producing positive operating margins for each of the past four years. Operating margins for the past five years have ranged from 2.7% to 6.8% with fiscal 2010 operations generating a 5.9% margin. Liquidity is relatively strong, accounting for 16.4% of operating expenses and 12.5% of pro forma debt. Cash and investments of $847,000 covers maximum annual debt service (MADS; $578,000) 1.5 times (x). Based on a total issuance of $6.8 million, ECS has a debt burden of 10.5%, comparing favorably to the Fitch charter school portfolio.
ECS is a school in good standing according to the New York State School Report Card for 2008-2009 and expects to remain as such for the 2009-2010 Report Card as well. ECS was granted probationary renewal from 2008 through 2010 by the State Education Department (SED) to remedy the lack of certain internal controls. ECS substantially fulfilled the requirements set out by the SED by focused involvement of the board and implementation of appropriate management and operational protocols and received a full renewal through June of 2013.
ECS is essentially an independent public school offering additional instructional hours relative to a traditional public school via an extended school day, a longer academic year, before- and after-school programs along with languages, computers, music, art, physical education, special education and ESL services. ECS integrates services and support from agencies such as interventional programs and maintains affiliations with Buffalo State College and benefits from its teachers' education programs.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated 13 Aug. 2010.
--'College and University Rating Criteria', dated 29 Dec. 2009.
--'Criteria for Rating Charter Schools', dated 23 Jan. 2007.
Applicable Criteria and Related Research:
Criteria for Rating Charter Schools
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=311604
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493170
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
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