Fitch Downgrades Brighter Choice Charter Middle Schools, NY to 'C'; Removes Rating Watch

NEW YORK--()--Fitch Ratings downgrades its rating on approximately $15.1 million of education facility revenue bonds issued by the Industrial Development Authority of the City of Phoenix, Arizona on behalf of Brighter Choice Charter Middle School for Boys and Brighter Choice Charter Middle School for Girls, New York (BCCMS) to 'C' from 'B+'. In addition, Fitch removes the Rating Watch Negative.

SECURITY

Education facility revenue bonds are a general obligation of BCCMS, with the Brighter Choice Foundation (BCF) providing a guaranty for debt service. A custody agreement directs state of New York (general obligation bonds rated 'AA+' by Fitch) educational aid funding received by Albany City School District (the district) to the bond trustee for the payment of debt service. Other security provisions include a debt service reserve funded to maximum annual debt service (MADS) and a first mortgage lien on the schools' facilities.

KEY RATING DRIVERS

CHARTER NOT RENEWED: The downgrade to 'C' reflects a decision by the schools' authorizer not to renew their respective charters. The schools will close and will be dissolved following expiration of the charters at the end of the current academic year. Fitch believes elimination of the bonds' primary source of repayment and dissolution of the obligated education corporations makes a payment default or receivership inevitable.

FOUNDATION GUARANTY NOT SUFFICIENT: The resources available under the foundation guaranty are not sufficient to make full and timely debt service payments. Fitch estimates the debt service reserve fund and foundation resources could support scheduled debt service payments for one to three years.

POSSIBLE LONG-TERM SOLUTIONS UNCLEAR: The schools and the foundation are exploring certain options that could result in continued payment of debt service obligations. Fitch does not expect these outcomes to be achievable under the bond documents without first causing a payment default, receivership, or other bondholder impairment.

RATING SENSITIVITIES

DEFAULT: Failure to make contractually required payments of principle or interest, including due to acceleration of principal by bondholders; receivership or dissolution of the obligors, including the guarantor; or other impairment of bondholders would cause Fitch to downgrade the bonds to 'D'.

CREDIT PROFILE

The schools are separate not-for-profit educational corporations, each running a single-gender middle school in a shared facility in Albany, NY. Each school received a provisional five-year charter in 2010 from its authorizer, the State University of New York (SUNY), upon the recommendation of SUNY's Charter School Institute (CSI). The schools' start-up costs and facilities were sponsored at inception by the foundation, which also guarantees debt service on the bonds. The bonds were issued in early 2012 to finance the schools' purchase of the facilities from the foundation. Each school had applied in 2014 for a short-term, three-year charter renewal upon expiration of the provisional charters in 2015. Following a recommendation of non-renewal from CSI, the SUNY trustees voted in March 2015 for non-renewal of the charters.

Please see Fitch's Brighter Choice Charter Middle Schools press release dated Dec. 18, 2014, available at 'www.fitchratings.com', for additional information.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

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

--'Revenue-Supported Rating Criteria (June 16, 2014);

--'Fitch Downgrades Brighter Choice Charter Middle Schools (NY) to 'B+'; rating Watch Negative' (Dec. 18, 2014).

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=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981681

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Colin Walsh
Director
+1-212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Colin Walsh
Director
+1-212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com