NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'BBB' rating on approximately $19.6 million of outstanding Louisiana Public Facilities Authority revenue bonds, series 2011 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 debt service reserve sized to maximum annual debt service (MADS).
KEY RATING DRIVERS
RATING STABLE DESPITE WEAKER FUNDING: BCA's operating profile and financial performance are consistent with Fitch's expectations for the 'BBB' rating, even with margin compression due to lower funding. BCA's financial performance had generally exceeded rating category expectations in prior years.
STRONG OPERATING PROFILE: The 'BBB' rating reflects BCA's 13-year operating history, with full enrollment and strong demand. Management has a successful track record of navigating regular, though smaller, funding volatility in prior years. Academic performance remains strong.
SOUND COVERAGE: BCA's typically very strong operations weakened but remained positive in 2015 after an adverse change in per-pupil funding methodology. However, BCA is expected to maintain at least breakeven GAAP-basis operations and sound debt service coverage in line with Fitch's criteria expectations at the 'BBB' level.
ADEQUATE BALANCE SHEET: BCA's financial cushion compares very favorably to other Fitch-rated charter schools and provides some cushion to offset margin compression. Available funds of $10.4 million (cash and investments not permanently restricted) at June 30, 2015 equaled a relatively healthy 61.7% of operating expenses and 49.7% of debt.
RATING SENSITIVITIES
MAINTAIN POSITIVE OPERATIONS: Inability of Belle Chasse Academy (BCA) to maintain generally positive GAAP-based operations and sound coverage of debt service would negatively affect the rating.
CHARTER-RELATED CONCERNS: Substantial reliance on enrollment-driven, per-pupil funding, and charter renewal risk are credit concerns common among all charter schools which, if pressured, could negatively impact the rating.
BASE DOWNSIZING OR CLOSURE: Base downsizing or closure are not expected but would have a material negative effect on the rating.
CREDIT PROFILE
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 Louisiana State Board of Elementary and Secondary Education (BESE) and was renewed for 10 years in 2007. Academic results are strong, and BCA continues to receive an 'A' academic letter grade from BESE, as well BESE's highest financial and organizational scores. BCA's limited charter renewal history is mitigated by the 10-year term of its charter, solid academic performance, and positive authorizer relationship.
Enrollment remains stable year-over-year at 933 students in grades K-8. The school's enrollment generally fluctuates somewhat during the year due to shifts in the base's population. BCA maintains an actively managed waiting list, which is available to fill vacancies arising as a result of routine military deployments or relocations. BCA's ability to minimize the impact of such enrollment turnover is a credit-positive and reflects strong management. Moreover, the base's growth and increased federal investment over the past few years reflect the strategic role it plays in the southeast region of the country.
POSITIVE OPERATIONS, ADEQUATE COVERAGE DESPITE LOWER FUNDING
BCA has generated consistent GAAP-basis operating surpluses, with an average operating margin of 9.2% over the fiscal 2010 to 2014 period due to stable enrollment, somewhat volatile but generally increasing per-pupil funding, and good management of expenses. For part of fiscal 2015, BCA's per-pupil funding was lowered based on a change in the Minimum Foundation Program (MFP) formula. In recent years, per-pupil funding had been based on location of the school. Under the revised methodology, funding rates now depend on the student's parish of residence. BCA is located in and still receives a majority of its students from Plaquemines Parish, but a portion of its students reside in nearby parishes with lower funding rates. As a result, BCA's margin remained positive but fell to 4% in fiscal 2015. Going forward, BCA's revenues will be about $2 million lower than under the prior formula.
Management expects fiscal 2016 results to be at least breakeven to budget despite the funding reductions. BCA has a track record of conservative budgeting and good expense controls. Further, 2016 budgeted expenses are similar to actual fiscal 2014 (budget-basis) expenses. Enrollment was similar in both years, and Fitch considers the expense cuts built into the 2016 budget to be realistic for the school.
Assuming breakeven GAAP-basis operations in fiscal 2016 (BCA budgets for full depreciation and interest expenses), Fitch expects that coverage of maximum annual debt service (MADS) will remain at or above 1.3x. Fitch expects charter schools to maintain MADS coverage of at least 1x from current enrollment and operations in order to be considered for an investment grade rating. However, failure to maintain balanced operations would likely lead to negative rating action.
ADEQUATE BALANCE SHEET CUSHION
BCA's balance sheet resources are generally stronger than those of charter school peers and provide an adequate financial cushion to manage unexpected increases in operating expenditures and/or decline in enrollment-related per-pupil funding. Available funds totaled $10.4 million as of June 30, 2015, up from $4 million as of June 30, 2011 due to retained operating surpluses over time. Available funds covered fiscal 2015 operating expenses ($16.8 million) and outstanding debt ($20.8 million) by a healthy 61.7% and 49.7%, respectively. These liquidity metrics are acceptable for the rating level and are unusually strong compared to other Fitch-rated charter schools that are generally characterized by very limited balance sheet resources.
MANAGEABLE DEBT BURDEN
Debt service ($1.6 million) is level through final maturity of the bonds in fiscal 2041. Debt service represented a moderately high 9.3% of fiscal 2015 operating revenues ($17.5 million). BCA has no additional debt plans, and Fitch expects the school's debt burden to remain manageable. Outstanding debt-to-net income available for debt service was an acceptable 7.4x for fiscal 2015, also comparing favorably to most other Fitch-rated charter schools. BCA maintained sound MADS coverage of 1.8x in fiscal 2015, and Fitch expects coverage to remain at or above 1.3x going forward. BCA has no additional debt or capital expansion plans.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Charter School Rating Criteria (pub. 05 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872774
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=999166
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=999166
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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