|[March 08, 2013]
Fitch Affirms Belle Chasse Academy (LA) at 'BBB'
NEW YORK --(Business Wire)--
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.
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.
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.
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
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
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
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
Revenue-Supported Rating Criteria
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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