Fitch Ratings has affirmed its 'BBB' rating on approximately $20.2
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.
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
STABLE OPERATIONS: The 'BBB' rating reflects BCA's 11-year operating
history, with full and stable enrollment; consistently positive
operating results; and adequate balance sheet resources.
Counterbalancing credit factors include recent reductions in state per
pupil funding levels and a high debt burden.
STEADY DEMAND: Student attrition resulting from periodic turnover of
on-base military personnel is well managed and has not adversely
impacted enrollment levels historically. Enrollment stability is further
underpinned by the solid academic performance of BCA students.
HIGH, BUT MANAGEABLE BURDEN: Typical of charter schools, BCA maintains a
high debt burden. However, this remains partially offset by the school's
track record of over 1x pro forma MADS coverage from net operating
income and adequate balance sheet cushion.
CHARTER RELATED CONCERNS: Substantial reliance on enrollment-driven, per
pupil funding; and charter renewal risk are credit concerns common among
all charter schools that, if pressured, could negatively impact the
FEDERAL BUDGET: BCA's location on a military base makes it susceptible
to decisions related to military staffing and location, including but
not necessarily due to federal deficit reduction actions. However, Fitch
does not presently anticipate any actions that would have a materially
adverse impact on BCA's 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. BCA
students continue to score well on the Louisiana Educational Assessment
Program tests and BCA generally meets or exceeds adequate yearly growth
based on BESE's school performance score, receiving an 'A' letter grade
from BESE for the 2012-2013 academic year. BCA's limited charter renewal
history is partially mitigated by the 10-year term of its charter, the
solid academic performance of its students, and the positive
relationship it maintains with its authorizer.
OPERATIONS SUPPORTED BY ENROLLMENT STABILITY
BCA currently enrolls 936 students in grades K-8, down from 951 students
at this time last year (Feb. 1, 2013 count). Fitch notes that the
school's enrollment generally fluctuates during the year due to shifts
in the base's population. The school enrolled 948 students at the start
of the 2013-2014 school year. BCA maintains an actively managed waiting
list, 140 students presently, which is available to fill vacancies
arising as a result of routine military deployments/relocations. BCA's
ability to minimize the impact of such enrollment turnover is viewed
positively by Fitch. Moreover, the base's growth over the past few years
reflects the strategic role it plays inthe southeast region of the
country. It also partially mitigates concerns regarding any future Base
Realignment and Closure Commission or other federal deficit reduction
BCA generated operating surpluses for each of the past five fiscal
years, with an average operating margin of 6.6%. Operations have been
driven largely by stable enrollment and a relatively favorable funding
environment. However, operating performance, while still solid, softened
in fiscal 2013 with the school generating a 5.9% operating margin
compared to 8.9% in fiscal 2012. The decline was due primarily to a
fiscal 2013 reduction in state per student funding to $13,229 from
$13,545 in fiscal 2012.
Management anticipates another operating surplus for fiscal 2014 but
likely less than the fiscal 2013 level due to a further reduction in
funding to $13,060 per student. Based on unaudited interim results as of
Dec. 31, 2013, revenues of $7.16 million are trending slightly behind
the Dec. 31, 2012 level of $7.25 million. However, expenses are also
trending below the prior year's level. While the lower funding level has
pressured operating performance, BCA's stable enrollment trends, healthy
level of per student funding increases prior to fiscal 2013, and
adequate balance sheet cushion provide it some flexibility to manage
Other budgetary actions BCA can take to offset lower funding include
adjusting staff headcount, adding students from its waiting list, and
utilizing cash reserves, if needed. BCA has capacity to enroll up to
1,200 students under its existing charter, although it does not
presently plan to grow to this level due to physical plant constraints
and current staffing levels. Due to its high reliance on per student
funding provided by the state (79% of fiscal 2013 operating revenues),
Fitch continues to view enrollment stability as a key determinant of the
Stable Rating Outlook.
ADEQUATE BALANCE SHEET CUSHION
BCA's balance sheet resources continue to provide an adequate financial
cushion to manage unexpected increases in operating expenditures and/or
decline in enrollment-related per pupil funding. Available funds
(defined as cash and investments not permanently restricted) totaled
$5.9 million as of June 30, 2013, down slightly from $6.2 million as of
June 30, 2012. Available funds covered fiscal 2013 operating expenses
($16 million) and outstanding debt ($20.1 million) by 36.6% and 29.1%,
respectively. While modest, these liquidity metrics are respectable for
a sector typically characterized by very limited balance sheet resources.
HIGH, BUT MANAGEABLE DEBT BURDEN
Pro forma debt service ($1.6 million) is level through final maturity of
the bonds in fiscal 2041 and represented 9.5% of fiscal 2013 operating
revenues of $17 million. While a 9.5% debt burden is considered high, it
is lower than that of many other charter schools presently rated by
Fitch. Based on BCA's track record of operating surpluses and lack of
additional debt plans, Fitch expects the school's debt burden to remain
manageable. Outstanding debt to net income available for debt service
was a moderately high 7.9x for fiscal 2013, also comparing favorably to
most other Fitch-rated charter schools.
In addition, BCA generated sound MADS coverage from operations of over
1.5x in each of the past three fiscal years. For fiscal 2013, MADS
coverage was a solid 1.6x based on net income available for debt service
of $2.5 million. For the charter school sector, Fitch considers a debt
burden under 15% and a track record of over 1x MADS coverage as
investment grade credit attributes.
The Fine Arts Center that was constructed with proceeds of the series
2011 bonds opened in July 2013, one year behind schedule as a result of
Hurricane Isaac in August 2012. BCA and the project's general contractor
are in ongoing settlement negotiations over the contractor's claim of
approximately $735,000 owed under the construction contract. The school
has recorded a retainage payable to cover this and built a $1 million
contingency into its budget. BCA hopes to resolve this matter soon with
terms favorable to the school. Fitch will continue to monitor the
outcome of any settlement and its credit impact on BCA.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Charter School Rating Criteria' (Sept. 19, 2012);
--'Fitch Affirms Belle Chasse Academy (LA) at 'BBB' (March 8, 2013).
Charter School Rating Criteria
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