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U.S. Charter Schools Rating Actions, Second-Quarter 2024

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U.S. Charter Schools Rating Actions, Second-Quarter 2024

During the second quarter of 2024 (April 1 to June 30), S&P Global Ratings changed its rating or revised the outlook on 12 U.S. charter schools while assigning one new rating and maintaining 42 ratings across the sector. The 13 rating actions are broken out as follows:

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In June, we published "U.S. Charter Schools Sector Fiscal 2023 Medians: Healthy Financial Metrics Amid Looming Fiscal Cliff" (June 25, 2024, on RatingsDirect), which highlights a variety of factors that led to the median financial metrics for our rated universe of charter schools in fiscal 2023. Overall, our latest medians indicate that financial performance remained healthy for charter schools in fiscal 2023, with stable-to-improving metrics across most measures relative to fiscal 2022. This was driven by material growth to the median enrollment for our rated universe and by more substantial increases in state per-pupil funding received by charter schools in states where we have rated schools. The report also discusses the trends most influencing charter schools during calendar 2024 and what we will be watching in the sector going forward.

S&P Global Ratings took five positive rating actions in second-quarter 2024, raising one rating as well as revising four outlooks, three to positive from stable and one to stable from negative. These actions were mostly spurred by sustained trends of improved financial performance, including strengthened operating margins and growing levels of liquidity, as well as by sound demand profiles.

The first half of 2024 saw an uptick in covenant violations, reflected in our second-quarter negative rating actions, as a result of operating challenges that led to fiscal 2023 financial deficits, weakened liquidity, and lower MADS coverage. In a few instances these pressures triggered technical covenant violations, leading to heighted uncertainty regarding certain bondholder actions as well as possible further ramifications from management organizations or authorizer for the schools involved. A couple of the negative rating actions occurred following the issuance of new debt that significantly increased the amount of leverage on the affected schools' balance sheets.

Together, these pressures resulted in seven negative rating actions across the sector during the quarter, one downgrade and six negative outlook revisions (two to stable from positive, one from stable to negative, two placed on CreditWatch with developing implications, and one placed on CreditWatch with negative implications).

In addition to the positive and negative rating actions, during the second quarter S&P Global Ratings added one new charter school rating, for an issuer based in Arizona, and withdrew the rating on Plymouth Educational Center Charter School, Mich. when the school closed.

The following tables summarize S&P Global Ratings' quarterly rating actions, outlook revisions, and unchanged ratings for U.S. charter schools. These are based on our "U.S. Public Finance Charter Schools: Methodology And Assumptions" criteria, published Jan. 3, 2017.

Table 1

Second-Quarter 2024: U.S. Charter Schools Rating Actions
Institution State Rating to Rating from Outlook to Outlook from Rating action Description
Champion Schools Inc. AZ BB - Stable - Rating initially assigned New rating
Legacy Traditional School AZ BBB- BB+ Stable Positive Rating raised Robust enrollment base, improved financial performance, and growing liquidity position.
Plymouth Educational Center Charter School MI - D - - Rating withdrawn Rating withdrawn due to school closing.
Public Preparatory Charter Schools Academies NY BB BBB Negative CW Negative Rating lowered Significant and unexpected increase in pro forma lease-adjusted debt in fiscal 2023 translating to pro forma MADS coverage below 1x, along with the network's significant enrollment declines in recent years leading to the consolidation of schools.
MADS: Maximum annual debt service.

Table 2

Second-Quarter 2024: U.S. Charter Schools Outlook Revisions
Institution State Rating Outlook to Outlook from Description
21st Century Charter School Of Gary IN B+ CW Developing Stable Uncertainty regarding negotiations related to a limited forbearance agreement between 21st Century, its management organization, and the bondholders of its series 2013A debt.
A.W. Brown Leadership Academy TX B+ CW Developing Negative Announcement that the school will surrender its charter to the state authorizer and stop operating under its current organization structure.
Academic Leadership Charter School NY BBB- Negative Stable Weakening demand profile in highly competitive market for students and expecations of more modest near-term financial performance.
Basis Schools, Inc. AZ BB Positive Stable Consistently strong academic and demand metrics and improving operating performance leading to a reduction in negative unrestricted net assets.
Channing Hall Charter School UT BB Positive Stable An improved financial profile led by a growing liquidity position and a moderating debt burden.
Global Leadership Academy Charter School PA BB- CW Negative Stable Trend of deficit operations resulting in DCOH and DSC covenant violations leading to short-term uncertainty regarding bondholder actions.
Mater Academy Of Nevada, Inc. NV BB- Stable Positive Weakened liquidity position and uneven financial performance in recent years, despite fiscal 2023 negative operating margins being attributable to timing issues with grants.
Universal Academy TX BB- Stable Negative Improved operating margins and favorable changes to management's growth strategy.
Valor Collegiate Academies TN BBB- Positive Stable Improved financial performance, growing liquidity, and moderating debt combined maintenance of a strong enterprise profile.
Victory Charter School ID BBB- Stable Positive Increased debt burden following issuing new debt and expectations of more modest MADS coverage in the near term.
MADS: Maximum annual debt service. DSC: Debt service coverage. DCOH: Days' cash on hand.

Table 3

Second-Quarter 2024: U.S. Charter Schools Maintained Ratings
Institution State Rating Outlook
Acero Charter School IL BB+ Stable
Athenian eAcademy UT BB Stable
Beatrice Mayes Institute TX BBB- Stable
Chicago Charter School Foundation IL BBB Stable
Cityscape Schools Inc TX BBB- Stable
Community Of Peace Academy MN BBB- Stable
Cornerstone Schools FL BB+ Stable
Dayspring Academy For Education And Arts FL BB Stable
Eleanor Kolitz Hebrew Language Academy TX BBB- Stable
Foundation Academy Charter School NJ BBB- Stable
Freire Charter School Wilmington DE BB Stable
Friends of Teaneck Community Charter School NJ BB Stable
Friendship Public Charter School, Inc. DC BBB Stable
Global Academy Inc. MN BB Stable
Harmony Public Schools TX BBB+ Stable
Hawking STEAM Charter School CA BB+ Stable
Horizon Community Learning Center AZ BB+ Stable
Hughen Center Inc d/b/a Bob Hope Charter School TX BBB- Stable
Idaho Arts Charter School ID BBB- Stable
IDEA Public Schools TX A- Negative
KIPP Capital Region NY BBB- Stable
KIPP NYC NY BBB- Stable
Lifeline Education Charter School CA BB+ Stable
Lincoln Academy UT BBB- Stable
Magnolia Science Academy 1 CA BB Stable
Mountainville Academy UT BBB- Stable
New Designs Charter School CA BB+ Stable
Newark Charter School DE BBB+ Stable
Palmetto Scholars Academy SC BB Negative
Peak To Peak Charter School CO BBB+ Stable
Philadelphia Electrical And Technology Charter High School PA BB Stable
Platte River Academy Charter School CO BBB- Stable
Renaissance Arts Academy CA BBB- Stable
Rocklin Academies CA BB+ Stable
Ronald Wilson Reagan Academy UT BB Stable
Seton Education Partners o/b/o Brilla Public Preparatory Charter Schools NY BB+ Stable
Somerset Academy of Las Vegas NV BB Stable
Syracuse Arts Academy UT BBB- Stable
Triad Math and Science Academy NC BBB- Stable
Twin Peaks Charter Academy CO BB Stable
Value Schools CA BBB- Stable
Western Academy Charter School FL BB Stable

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Ryan Miller, Dallas +1 2148711408;
ryan.miller@spglobal.com
Secondary Contacts:Jessica L Wood, Chicago + 1 (312) 233 7004;
jessica.wood@spglobal.com
Avani K Parikh, Phoenix + 1 (212) 438 1133;
avani.parikh@spglobal.com

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