[November 16, 2012]

Fitch Affirms George School (PA) Revs at 'AA-'; Outlook Stable

Fitch Ratings has affirmed the 'AA-' rating on approximately $33.9 million of outstanding series 2009 and series 2011 revenue bonds issued by Bucks County Industrial Development Authority on behalf of George School (the school).

The Rating Outlook is Stable.

SECURITY

The bonds are an unsecured general obligation of the school, payable from all legally available funds.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA-' rating reflects the school's strong balance sheet liquidity, favorable demand profile, and track-record of healthy operating performance. Counterbalancing factors include limited revenue diversity and a high debt burden.

STRONG FINANCIAL CUSHION: Balance sheet resources have grown significantly since Fitch's last review, providing the school with considerable financial flexibility.

HEALTHY OPERATING RESULTS: The combination of prudent financial management, healthy enrollment trends, and continued support from the Barbara Dodd-Anderson Charitable Lead Annuity Trust (BDA Trust) has produced year-over-year operating surpluses. Moderately high revenue concentration in student-charges is partly offset by the school's solid student demand.

HIGH DEBT BURDEN: The debt burden remains high and is anticipated to increase in the near term with a potential debt issuance. The school's consistently strong level of balance sheet resources and management's conservative financial and budgeting practices are important offsetting factors.

WHAT COULD TRIGGER A RATING ACTION

ADDITIONAL DEBT ISSUANCE: While not anticipated, the issuance of additional revenue bonds beyond existing debt plans could yield downward rating pressure.

CREDIT PROFILE

George School's available funds, defined by Fitch as cash and investments not permanently restricted, remain the primary credit strength. Available funds increased by a sizeable 75.2% in fiscal 2011 over the prior year to $87.6 million, driven by the receipt of a large bequest (approximately $30 million).

Available funds of $87.7 million in fiscal 2012 covered operating expenses and long-term debt by a robust 3.4 times (x) and 2.7x, respectively. Exposure to less liquid asset classes remained manageable, as these assets represented a moderate 12.4% of fiscal 2012's total investments.

Growth in financial resources has been supported by the school's track-record of favorable operating performance. George School generated its fifth consecutive positive operating margin in fiscal 2012 of 4.5%. The school continues to benefit from the BDA Tust, an irrevocable 20-year gift agreement that provides an annual transfer of monies on an unrestricted basis (18.5% of fiscal 2012 operating revenues).

As student-related charges underpin the majority of revenues (58.7% in fiscal 2012), effective enrollment forecasting and recruiting have also been important contributing factors in the generation of annual operating surpluses.

The schools existing debt portfolio is structured to be back loaded, with pro forma maximum annual debt service (MADS) of $4.3 million (occurring in 2035) consuming a high 15.4% of fiscal 2012 operating revenues. Amortizing the school's outstanding bonds evenly, adjusted pro forma MADS of $2.8 million consumes a still high, though more moderate, 10.5% of fiscal 2012 operating revenues.

Counterbalancing the magnitude of debt burden under either approach is the school's track-record of satisfactory debt service coverage from operations (1x and 1.5x of MADS and Adjusted MADS, respectively, in fiscal 2012).

The school is planning to expand its athletic facilities in the near term, which is to be financed through borrowing of approximately $30 million. Management plans to absorb added debt service entirely through investment returns on an endowment established specifically to support the new facility.

While the school's debt burden will increase after the anticipated borrowing, Fitch believes the school's strong financial cushion, which is expected to still provide solid coverage of long-term debt post-issuance, and track-record of prudent financial management provide some comfort that the school is well-positioned to manage the additional leverage.

George School is an independent boarding and day school serving grades 9 through 12. It was founded in 1893 by the Religious Society of Friends (Quakers) and is located on 240 acres in Newtown, Pennsylvania. Total headcount enrollment has been relatively stable for the past five years, ranging from 520 students in fall 2008 to 545 students in fall 2012. This has been bolstered by generally increased selectivity over the past few years across both day and boarding school students. The matriculation rate has remained solid, with approximately one-half and two-thirds of accepted boarding and day school applicants, respectively, enrolling in fall 2012.

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.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated June 12, 2012 ;

--'Independent School Rating Criteria', dated June 18, 2012;

--'Fitch Rates George School, Pennsylvania's Rev Bonds 'AA-'; Outlook Stable', dated Feb. 22, 2011.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=681015

Independent School Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=681236

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