|[February 21, 2014]
Fitch Affirms Aspire Public Schools, CA's Revs at 'BB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'BB' rating on $93.3 million California
Statewide Communities Development Authority school facility revenue
bonds, series 2010, issued on behalf of Aspire Public Schools (the
The Rating Outlook is Stable.
The bonds are secured by rental payments made by Aspire Public Schools
(Aspire) equal to debt service on the bonds from gross revenues of the
10 schools which received bond proceeds (the bond schools); a debt
service reserve fund; deeds of trust on five of the 10 financed
facilities; and partial credit enhancement through a $17 million letter
of credit (LOC). The rating does not incorporate the partial credit
enhancement from the LOC.
KEY RATING DRIVERS
STRONG OPERATIONAL/FINANCIAL MANAGEMENT: Fitch views Aspire's
operational and financial management practices as strong. Academic
performance for most of the bond schools is at or above state
expectations, and in fiscal 2013 each school generated a modest
operating surplus on a full accrual basis.
LIMITED OPERATING HISTORY: Four of the 10 bond schools have been in
operation less than five years, and one has not gone through its first
charter renewal process. Under Fitch's charter school rating criteria,
this precludes those schools from being included in debt service
FINANCIAL METRICS REMAIN SPECULATIVE: Despite effective leadership and
policies, balance sheet metrics for the 10 bond schools and the
consolidated Aspire organization remain very limited. Transaction
maximum annual debt service coverage (TMADS), as adjusted per Fitch's
criteria, was positive.
WEAK BALANCE SHEET AND LIMITED DIVERSITY: Weak balance sheet strength
for the bond schools - which largely comes from consolidated Aspire
operations, could create rating pressures. There is some philanthropic
support which adds revenue diversity, although this is mostly at the
consolidated Aspire level.
OPERATING PERFORMANCE: Weakened TMADS coverage from the bond schools due
to enrollment declines or state per pupil funding reductions could
create rating pressures.
STANDARD CHARTER RENEWAL RISK: A limited financial cushion; substantial
reliance on enrollment-driven, per-pupil funding; and charter renewal
risk are credit concerns common in all charter school transactions
which, if pressured, could negatively impact the rating over time.
Aspire is a non-profit public-benefit corporation that operates 37
charter schools, mainly in California. Of these, the 10 bond schools
serve a mix of K-12 grades, and are located in various California
communities. Series 2010 bond proceeds were used to finance or refinance
charter school facilities. Gross revenues of 10 of those schools, all in
California, support debt service on the series 2010 educational school
facility revenue bonds.
In response to a 2012 decision by the Alameda County Superior Court
regarding its statewide benefit charters, Aspire obtained local school
district charters for the six schools formerly authorized as state-wide
benefit charters. Those local charters are in place as of the 2013/2014
academic year. Fitch considers the prior litigation risk resolved.
POSITIVE ENROLLMENT AND DEMAND TRENDS
As of fall 2013, Aspire enrolled approximately 4,073 students at the 10
bond schools, an annual increase of about 2%. As in the past several
years, this pace exceeds Aspire's base-cse forecast for the bond
schools. Demand for an Aspire education remains robust, as evidenced by
waitlists at the bond schools exceeding 3,300 in fall 2013 (fiscal 2014).
Positive academic results also drive student demand. In academic year
2012/2013, four schools failed to meet the state API growth target
(Aspire Golden State, Aspire Langston Hughes (News - Alert), Aspire Twilight Secondary
and Aspire Pacific Prep Academy), and were below the state-wide average.
The other six bond schools reported API results well in excess of the
state average and the state proficiency target. As a whole, Aspire's
California schools' API average was well above state targets and
averages. Fitch is not concerned about the mixed academic performance at
this time, as the various charter authorizers reported satisfactory
management focus on achievement as well as incremental progress. Aspire
allocates additional resources to schools with lower API scores.
IMPROVING FINANCIAL PERFORMANCE
State funding, tied primarily to enrollment, remains the bond schools'
primary revenue stream. For fiscal 2013, Fitch calculated a positive
9.2% operating margin for the bond schools based on unaudited
consolidated financials provided by Aspire. This compares to 3.6% in
fiscal 2012. Management attributes the stronger operating performance to
increased state per-pupil funding, conservative budgeting, and stable to
Under Fitch's charter school criteria, Fitch adjusts the debt service
coverage calculation to exclude any charter school that has an operating
history of less than five years. Such schools are deemed speculative
grade under this criteria. Four of the 10 bond schools (Aspire Alexander
Twilight Prep, Aspire Alexander Twilight Secondary, Aspire Pacific, and
Aspire Titan) currently meet that definition. When related net revenues
from these four schools are excluded from Fitch's assessment of TMADS
coverage for the bond schools, adjusted fiscal 2013 coverage was still
1.6x (it was 1.8x with all 10 bond schools).
HIGH DEBT BURDEN
On a consolidated basis, TMADS burden remains high. In fiscal 2013,
TMADS of $6.6 million was 16.9% of bond school revenues, which is a
speculative-grade attribute based on Fitch's rating criteria. The series
2010 bonds are the only outstanding debt for the bond schools, and
Aspire management reports no plans for additional debt related to those
SLIM BALANCE SHEET
Aspire's balance sheet cushion (defined as available funds [AF], or
unrestricted cash and investments) at the end of fiscal 2013, on both a
bond school and Aspire consolidated basis, remains very light. There was
essentially no AF recorded at the charter school level, and $19.7
million at the Aspire consolidated level. Fitch adjusted consolidated
cash and investments for restricted funds, with a resulting available
funds amount of $8.9 million (up from an adjusted $3.2 million in 2012).
For consolidated Aspire, adjusted available funds remain at extremely
modest levels of 7.7% of expenses and 5.7% of debt (including the series
Proposition 30 revenues led to per-pupil funding improvement in fiscal
2013. While this supported stronger TMADs coverage levels, Fitch expects
increases in reserves to be relatively modest. Liquidity risk remains a
credit concern, as is the case for nearly all Fitch-rated charter
STANDARD CHARTER SCHOOL RISK FACTORS
Effective for the 2013/2014 academic year, the bond schools now operate
under charters with five different local school district authorizers.
Fitch communicated with all five authorizers, who reported that the bond
schools and Aspire were cooperative in their oversight process and in
compliance with charter requirements. These authorizers reported no
outstanding issues threatening the charters at this time.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Charter School Rating Criteria' (Sept. 19, 2012);
-- Fitch Downgrades Aspire Public Schools (CA (News - Alert)) to 'BB'; March 08, 2013.
Applicable Criteria and Related Research:
Charter School Rating Criteria
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