U.S. Charter School Ratings ContinuedTo Slip As 2013 Medians Sent MixedSignals
Primary Credit Analyst:
Carlotta R Mills, San Francisco (1) 415-371-5020; carlotta.mills@standardandpoors.com
Secondary Contact:
Avani K Parikh, New York (1) 212-438-1133; avani.parikh@standardandpoors.com
Research Contributors:
Phillip A Pena, San Francisco (415) 371-5039; phillip.pena@standardandpoors.comDuncan Manning, San Francisco (1) 415-371-5088; duncan.manning@standardandpoors.comRuchika Radhakrishnan, CRISIL Global Analytical Center, an S&P affiliate, MumbaiAlisha Sukhija, CRISIL Global Analytical Center, an S&P affiliate, MumbaiBinkhal Gandhi, CRISIL Global Analytical Center, an S&P affiliate, MumbaiKartik Mani, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Table Of Contents
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U.S. Charter School Ratings Continued To Slip As2013 Medians Sent Mixed Signals
The number of charter schools that Standard & Poor's Ratings Services rates has continued to grow since our lastreport on the sector's median performance ratios (see "Charter School Medians Reflect Operating Pressures In AGrowing Sector," published June 27, 2013). Most of the growth has been in the 'BB' category ('BB+', 'BB', and 'BB-'), asit was in the previous year, and we've downgraded a number of schools to speculative-grade as well. We believe thisincrease at the lower end of our rating scale reflects the culmination of years of per-pupil funding cuts and the resultingpressure on schools' operations, along with increased competition in some markets. In addition, schools are enteringthe capital markets and requesting ratings earlier in their lifecycles.For these reasons, we anticipate that ratings will continue to move to the lower end of our rating spectrum, and ouroutlook on the sector remains negative overall (see "The U.S. Charter School Outlook Is Still Negative in 2014,"published Feb. 24, 2014 on RatingsDirect). Of our 214 public charter school ratings, currently, 41 (19%) have negativeoutlooks while only 5 (2%) are positive. Although funding may be beginning to stabilize in many states, it generallyhasn't returned to pre-recessionary levels, and some schools are struggling to operate in this "new normal."
Overview
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Funding is increasing for charter schools in some states, but many are still struggling from the Great Recessionfallout.
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More schools are beginning to issue debt (and request ratings) earlier in their life cycle.
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The portion of charter school ratings at the lower end of the range for this sector continues to rise.
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The sector's medians showed mixed results with weakening financials but increased cash and demand acrossmost rating categories.As of June 16, 2014, we rated 214 charter schools publicly, including 28 new charter schools since the data reported inour last median report. We rate schools in 22 states and Washington, D.C. Our ratings are concentrated in four states:Michigan (30), Colorado (25), Texas (25), and Pennsylvania (21).
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Chart 1
We newly rated schools in more than 10 states since our last report. Not surprisingly, one of the two states with themost ratings growth has a new guarantee program, through which qualifying schools with an investment-gradeStandard & Poor's underlying rating (SPUR) may receive an enhanced rating based on the state's credit enhancementprogram. Under Utah's moral obligation program, initiated in 2013, schools may qualify for an enhanced 'AA' rating.We assigned five new ratings to charter schools in Utah since the last median report. The unenhanced SPUR on theseschools mirrors the ratings and trends we see elsewhere in the sector. Texas also has a new enhancement program,and Colorado's has existed for quite a while. We also newly rated six schools in California this year, the other statewith the most charter school ratings growth.
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U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals
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