[March 08, 2013]

Fitch Takes Rating Actions on 28 Charter Schools

Fitch Ratings has completed its comprehensive portfolio review of ratings on charter school securities issued by various conduit entities. In total, Fitch reviewed 28 ratings, the press releases of which were published today. A detailed spreadsheet with all rating actions will be published early next week.

Below is a summary of the rating actions:

--Downgraded and removed from Rating Watch Negative ratings on 19 charter schools and subsequently assigned a Stable Outlook;

--Downgraded and removed from Rating Watch Negative ratings on two charter schools and subsequently assigned a Negative Outlook;

--Downgraded and maintained Rating Watch Negative on two charter schools;

--Affirmed and removed from Rating Watch Negative ratings on four charter schools and subsequently assigned a Stable Outlook;

--Upgraded and removed from Rating Watch Negative the rating on one charter school and subsequently assigned a Stable Outlook.

Fitch had placed its 27 charter school ratings on Rating Watch Negative on Sept. 19 of last year following publication of new rating criteria. The criteria reflected feedback received during the two-month exposure draft comment period. Subsequently, Fitch conducted full credit reviews for all of its charter school ratings. During that review process, Fitch determined that one rating should be viewed as two separate ratings given the nature of the security pledges on the affected bonds. Therefore, Fitch's reviews ultimately included 28 charter school ratings.

The credit reviews resulted in 23 downgrades, 1 upgrade, and 4 affirmations. The rating actions reflect Fitch's view that the new criteria would put downward rating pressure on nearly all charter school ratings. Previously, 21 of Fitch's 27 charter school ratings had been investment-grade and the average rating was between 'BBB-' and 'BBB'. Following today's rating actions, 20 of Fitch's 28 charter school ratings are speculative-grade and the average rating is between 'BB' and 'BB+'. Across the entire portfolio, the average rating downgrae was two notches.

DOWNGRADES LARGELY CRITERIA DRIVEN

Most downgrades primarily reflect the application of Fitch's updated rating criteria. Specifically, operating history and financial and debt profile, including high leverage, are generally speculative grade for most of Fitch's portfolio of charter schools.

CREDIT DETERIORATION ALSO A FACTOR

In several cases, Fitch noted rapid deterioration in fundamental credit quality for charter school transactions. Unanticipated enrollment declines, poor management actions, and sharp financial weakening exacerbated the negative effect of the criteria changes. This rapid decline in credit quality illustrates the volatility inherent in most charter school financings and is one factor limiting the ratings for the sector.

SPECULATIVE GRADE PORTFOLIO

Fitch believes its charter school ratings will likely remain predominantly speculative-grade for the foreseeable future. Under Fitch's updated rating criteria, expectations for investment-grade ratings are generally beyond the reach of most charter schools. Fitch will continue to monitor developments in its portfolio and the general charter school marketplace and take rating action when appropriate.

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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