[March 08, 2013]

Fitch Affirms Belle Chasse Academy (LA) at 'BBB'

Fitch Ratings has affirmed and removed from Rating Watch Negative its 'BBB' rating on $20.5 million of outstanding revenue bonds, series 2011, for the Louisiana Public Facilities Authority. The bonds are issued on behalf of Belle Chasse Educational Foundation (the foundation).

The Rating Outlook is Stable.

SECURITY

The bonds are payable by the foundation through lease payments received from Belle Chasse Academy (BCA), a charter school located on Naval Air Station-Joint Reserve Base New Orleans (the base). Lease payments constitute a general obligation of the school, payable from all legally available funds. The bonds are further secured by a leasehold mortgage over BCA's facilities and a cash funded reserve equal to maximum annual debt service (MADS).

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: A successful 10-year operating history; generally positive operating results, fueled by full and stable enrollment and a favorable funding environment; and adequate balance sheet resources underpin BCA's 'BBB' rating. Counterbalancing credit factors include a revised state funding formula that may pressure BCA's operating performance going forward.

STEADY STUDENT DEMAND: Student attrition resulting from periodic turnover of on-base military personnel is well managed and has not adversely impacted enrollment levels, which continue to grow. BCA's ability to cover pro forma debt carrying charges by over two times from current enrollment levels provides further credit stability.

HIGH, YET MANAGEABLE DEBT BURDEN: Typical of charter schools, BCA maintains a moderately high, albeit manageable, debt burden. This is offset by a track record of over 1x MADS coverage from operations.

RATING SENSITIVITIES

CHARTER RELATED CONCERNS: A limited financial cushion; substantial reliance on enrollment-driven, per pupil funding; and charter renewal risk are credit concerns common among all charter school transactions that, if pressured, could negatively impact the rating over time.

BASE REALIGNMENT AND CLOSURE (BRAC): BCA's location on a military installation makes it susceptible to BRAC Commission decisions. However, Fitch does not anticipate action at this time.

CREDIT PROFILE

Driven by stable enrollment and a favorable funding environment, BCA generated a positive operating margin for the past four fiscal years, including a solid 8.9% margin in fiscal 2012. Current enrollment of 971 students is up from 942 at this point last year. BCA maintains a waiting list of 138 students which is available to fill vacancies arising as a result of routine military deployments/relocations. BCA's ability to minimize the impact of such turnover on enrollment is viewed positively by Fitch. Moreover, the base's growth over the past few years reflects the strategic role it plays in the southeast region of the country. It also partially mitigates concerns regarding future BRAC Commission and other federal deficit reduction actions.

Per student funding, BCA's primary funding source, increased to $13,545 for fiscal 2012, up 10% from fiscal 2011. BCA's fiscal 2012 operating surplus (its fifth in the past six fiscal years) was in line with the fiscal 2011 level. BCA's continued stable to slightl growing enrollment partially offsets its high reliance on per student funding (79.9% of fiscal 2012 operating revenues) provided by the state.

Due to a change in the state's funding formula, BCA expects up to a $3.5 million reduction in total revenues generated by per student funding commencing in fiscal 2013. Fitch believes that this will likely pressure operating performance. That said, the healthy level of per student funding increases over the past two fiscal years and BCA's relatively sound balance sheet cushion should afford it some flexibility to manage the reduced funding.

BCA's available funds, defined as cash and investments not restricted, totaled $6.2 million as of June 30, 2012, covering fiscal 2012 operating expenses ($15.4 million) and debt ($20.4 million) by 40.4% and 30.6%, respectively. These liquidity metrics are respectable for a sector typically characterized by very limited balance sheet resources.

BCA also identified various measures it can effectuate to buffer reduced state funding. Among them include reducing employee-related healthcare and benefits costs, adding students from its waiting list, and utilizing cash reserves, if needed. BCA has capacity to enroll up to 1,200 students under its existing charter. However, BCA does not plan to grow to this level given physical plant constraints and current staffing levels.

Pro forma debt service ($1.6 million) is level through final maturity of the bonds (fiscal 2041) and represented 9.5% of fiscal 2012 operating revenues ($17 million). While a 9.5% debt burden is generally considered high, Fitch deems it moderate for the charter school sector. Based on BCA's track record of operating surpluses and lack of additional debt needs, Fitch expects the school's debt burden to remain manageable. In addition, BCA generated sound MADS coverage from operations of 2.1x and 1.7x in fiscal years 2012 and 2011, respectively. Fitch considers a debt burden under 15% and MADS coverage over 1x as investment grade credit attributes.

The fine arts center being constructed with proceeds of the series 2011 bonds was scheduled to open in August 2012. However, it was delayed due to the impact of Hurricane Isaac on the Gulf Coast region. BCA anticipates the additional costs related to the delay to range from $200,000 to $300,000, portions of which will be covered by insurance. BCA estimates its out-of-pocket expense could be up to $100,000, which will be covered by contingency reserves and cash flow if needed. Fitch is not overly concerned with this as the additional cost to BCA is fairly minimal relative to its adequate financial cushion. Additionally, the delayed opening of the facility does not impact core school operations.

Opened in 2002, BCA serves grades K-8 and was the first charter school established on a military installation. Its initial five-year charter was granted in 2001 by the State Board of Elementary and Secondary Education (BESE) and was renewed for 10 years in 2007. BCA students continue to score well on the Louisiana Educational Assessment Program tests. BCA also generally meets or exceeds adequate yearly growth based on BESE's school performance score. BCA's limited charter renewal history is partly mitigated by the 10-year term of its charter, the strong academic performance of its students, and the positive relationship it maintains with its authorizer.

Fitch's actions are part of its completed industry-wide review, which commenced September of last year when Fitch placed all of its rated charter schools on Rating Watch Negative. Fitch will release an overview of its rating actions in a separate press release later today.

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:

--'Charter School Rating Criteria' (Sept. 19, 2012);

--'Revenue-Supported Rating Criteria' (June 12, 2012);

--'Fitch Places all Charter School Bonds on Rating Watch Negative' (Sept. 29, 2012).

Applicable Criteria and Related Research

Charter School Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=688957

Revenue-Supported Rating Criteria

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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