The number of charter schools that Standard and Poor's Ratings Services rates has continued to grow since our last report. Most of the growth has been in the 'BB' category ('BB+, 'BB, and 'BB-'), as it was in the previous year. Schools are entering the capital markets and requesting ratings earlier in their lifecycles.
The number of charter schools that Standard and Poor's Ratings Services rates has continued to grow since our last report. Most of the growth has been in the 'BB' category ('BB+, 'BB, and 'BB-'), as it was in the previous year. Schools are entering the capital markets and requesting ratings earlier in their lifecycles.
The number of charter schools that Standard and Poor's Ratings Services rates has continued to grow since our last report. Most of the growth has been in the 'BB' category ('BB+, 'BB, and 'BB-'), as it was in the previous year. Schools are entering the capital markets and requesting ratings earlier in their lifecycles.
To Slip As 2013 Medians Sent Mixed Signals 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.com Duncan Manning, San Francisco (1) 415-371-5088; duncan.manning@standardandpoors.com Ruchika Radhakrishnan, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Alisha Sukhija, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Binkhal Gandhi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Kartik Mani, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Table Of Contents A Snapshot Of Charter Schools' Median Performance Ratios Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 1 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals The number of charter schools that Standard & Poor's Ratings Services rates has continued to grow since our last report on the sector's median performance ratios (see "Charter School Medians Reflect Operating Pressures In A Growing Sector," published June 27, 2013). Most of the growth has been in the 'BB' category ('BB+', 'BB', and 'BB-'), as it was in the previous year, and we've downgraded a number of schools to speculative-grade as well. We believe this increase at the lower end of our rating scale reflects the culmination of years of per-pupil funding cuts and the resulting pressure on schools' operations, along with increased competition in some markets. In addition, schools are entering the 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 our outlook 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 negative outlooks while only 5 (2%) are positive. Although funding may be beginning to stabilize in many states, it generally hasn't returned to pre-recessionary levels, and some schools are struggling to operate in this "new normal." Overview Funding is increasing for charter schools in some states, but many are still struggling from the Great Recession fallout. More schools are beginning to issue debt (and request ratings) earlier in their life cycle. The portion of charter school ratings at the lower end of the range for this sector continues to rise. The sector's medians showed mixed results with weakening financials but increased cash and demand across most rating categories. As of June 16, 2014, we rated 214 charter schools publicly, including 28 new charter schools since the data reported in our 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). WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 2 1336948 | 302218478 Chart 1 We newly rated schools in more than 10 states since our last report. Not surprisingly, one of the two states with the most ratings growth has a new guarantee program, through which qualifying schools with an investment-grade Standard & Poor's underlying rating (SPUR) may receive an enhanced rating based on the state's credit enhancement program. 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 these schools 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 state with the most charter school ratings growth. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 3 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Chart 2 Despite the risks inherent to the sector, such as the need for charter schools to be reauthorized or reviewed at regular intervals well before the bond maturities, the majority of our charter school ratings are investment grade ('BBB' category). However, the number of speculative-grade ratings has risen since our last report. As of June 16, 2014, 58% of our charter school ratings were investment grade, considerably down from 70% last year. Less than half (46%, or 98 schools) are at 'BBB-', the lowest investment-grade rating, a notable drop from 56.7%, or 106 schools, in 2013. The percentage of schools at the upper end of our rating spectrum hasn't changed much with 26 (12.1%) 'BBB' and 'BBB+' charter school ratings since the last report versus 25 (13.4%) during the previous period. As of June 16, 2014, four schools carried the highest unenhanced rating of any charter school we rate currently: 'BBB+', one more than in 2013. The portion of 'BB+' rated charter schools grew to 21.0% of the total (45 schools) compared with last year's 17.1% (32). But the greatest movement was of ratings at 'BB' and below, which constituted 46 ratings (21.5%) as of June 16, 2014, compared with the 24 schools (12.8%) in the previous report. In addition, as we noted in last year's median report, more schools are entering the market earlier in their life cycles, which has also contributed to the rise in the number and percentage of speculative-grade ratings. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 4 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Chart 3 Our general outlook on the sector is negative, which is reflected in the rise of speculative-grade ratings and the rating changes we made during the past couple of years. While we affirmed the majority of our ratings (125) in the past year, we downgraded 27 schools and upgraded only one; we had also upgraded only one school in the previous year. In addition, we placed 26 ratings on negative outlook compared with just five on positive outlook. This is similar to the previous year. We note that even schools with the highest ratings in the sector are not immune to operating or other pressures. At the time of this report, three of the four 'BBB+' rated schools have negative outlooks. As with the lower-rated schools, higher-rated schools have also had to contend with budget cuts and increased competition, which has resulted in lower margins. Table 1 Rating Actions Between May 31, 2014 And June 14, 2014 New ratings 28 Rating affirmations 125 Positive outlook revisions 5 Negative outlook revisions 26 Upgrades 1 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 5 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 1 Rating Actions Between May 31, 2014 And June 14, 2014 (cont.) Downgrades* 27 *Includes ratings placed on CreditWatch with negative implications. A Snapshot Of Charter Schools' Median Performance Ratios These median ratios are based on the fiscal 2013 and 2012 audited results for the schools we rated publicly as of June 16, 2014 (table 3) and are the outcome of Standard & Poor's analysis of charter schools according to our rating criteria. While we view ratio analysis as an important tool in our assessment of a charter school's credit quality, it is only one of the financial components we assess. We incorporate several qualitative factors, along with our view of the short- and long-term stability of a particular school, into our analysis. Various enterprise profile factors related to trends in demand, competition, academic performance, management and governance, growth plans, local area demographics, state legislatures, and charter structure are all key components of our rating analysis. Median ratios offer a snapshot of the financial position of all rated schools and help when making credit comparisons across rating categories. In addition, we believe tracking median ratios over time allows for a clearer understanding of sector-wide trends and provides analysts and investors with a tool to better assess the future credit quality of the sector. Table 2 Charter School Median Comparison* BBB+/BBB BBB- BB+ BB/BB- 2013 2012 2013 2012 2013 2012 2013 2012 No. of schools 24 25 96 106 45 32 38 21 Enrollment 1,531 1,344 799 697 935 864 957 997 EBIDA margin (%) 17.9 16.6 14.4 12.1 12.9 12.7 11.4 10.1 Excess margin (%) 3.8 3.5 1.3 2.0 1.5 2.6 1.1 (0.1) Lease-adjusted annual debt service coverage (x) 1.6 1.6 1.4 1.4 1.2 1.3 1.3 1.1 MADS ($000) 2,090 1,474 930 793 1,013 968 1,300 1,444 Lease-adjusted MADS coverage (x) 1.6 1.5 1.3 1.3 1.2 1.3 1.0 1.1 Lease-adjusted MADS as a percent of state aid (%) 14.8 13.1 16.3 15.0 19.8 15.8 18.6 17.9 Lease-adjusted MADS debt burden (%) 12.2 11.4 13.1 12.2 15.2 12.7 15.5 15.0 Unrestricted days' cash on hand 153 156 99 67 69 44 35 44 Unrestricted cash to debt (%) 27.5 26.0 15.9 13.0 12.2 12.0 6.8 8.0 Unreserved net assets as a percent of operating expenses 36.6 35.0 25.7 22.0 19.5 17.0 10.9 10.0 *Fiscal year. MADS--Maximum annual debt service. Demand is rising Enrollment increased at all but our lowest-rated schools. Generally, many of our speculative-grade rated schools are smaller, and they also have more difficulties attracting students. The increase in enrollment for the sector as a whole reflected in part the incremental additions of students to classrooms from year to year. The median enrollment grew by about 100 students (14%) for the 'BBB-' category in 2013. However, the enrollment range is quite large, illustrating the variety of 'BBB-' schools we rate, from single-site schools with headcounts of less than 300 to large school systems WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 6 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals with more than 12,000 students. The popularity and comparatively strong academics of charter schools in some communities have helped fuel the growth in both the headcount and the number of schools across the nation. We anticipate that enrollment medians will continue to increase for investment-grade schools, which tend to enjoy strong demand profiles. The enrollment and related demand characteristics are a key component of a school's enterprise profile. Since total revenues largely depend on per-pupil funding, we incorporate the ability to attract and retain students into our analysis by assessing growth trends, retention rates, and wait lists. While higher enrollment doesn't directly correlate to a higher rating, schools with very small enrollment typically don't have the operating flexibility to withstand any fluctuations in demand. The median enrollment of 1,531 for the 'BBB+' and 'BBB' schools, compared with 935 for the 'BB+' schools, reflects the higher-rated schools' greater revenue flexibility that comes, in part, from a larger headcount. In addition, the wait lists for the 'BBB+' and 'BBB' rated schools are generally much higher than those of the lower-rated schools. Financial performance was mixed Once again, when looking at operating performance, we see that all but the lowest-rated schools are able to maintain slim but positive operating margins and cover debt service. Overall, the changes in medians from fiscal 2012 to 2013 across the rating categories are mixed, with certain financial metrics improving and others weakening without a pattern among the rating categories. We believe that this reflects each school's response to their individual operating difficulties, as well as the varying state environments in which charter schools operate. This highlights the importance of effective management and governance for charter schools. Also, the mixed results, in our view, are due to the movement in the ratings between categories. In addition, some weakening of our medians may have occurred as our rated universe continues to grow to include more new schools that may be in the earlier stages of their growth plans and potentially operating with compressed margins. Nevertheless, clear trends emerged over the past year: declining excess margins and maximum annual debt service (MADS) coverage. Although there isn't a large variance in the EBIDA and excess margins across the rating categories, these ratios are somewhat stronger for the 'BBB+' and 'BBB' rated schools and weaker for the 'BB' and 'BB-' rated schools, reflecting the latter's restricted operating flexibility and the increased credit risk for speculative-grade schools compared with this time last year. We note that the median excess margin decreased slightly for the majority of the schools we rate (which are concentrated in the 'BBB-' and 'BB+' rating categories), reflecting operating constraints that still linger from recent declines in per-pupil funding and some state holdbacks, allowing for less flexibility. While per-pupil funding appears to have stabilized and even increased a little in fiscal 2014 for some states, some schools may take longer than others to recover fully, if they do at all. It depends on when the cuts occurred and management's ability to make often difficult decisions. For most schools we rate, maximum annual debt service (MADS) has increased, illustrating that schools are taking on more debt. This also strained operations at a time when revenues were not necessarily growing (except if a school was adding students). Thus, MADS coverage also declined across most rating categories although, at 1.3x, it was stable for the 'BBB-' rated schools. The weakening is at the lower end of the rating spectrum, with coverage declining slightly to 1.15x from 1.30x for the 'BB+' schools and to just 1.0x from 1.1x for the 'BB' and 'BB-' schools. Even the lower-rated schools are able to generate at least 1x MADS coverage although, given bond covenant requirements, coverage at this WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 7 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals level does not provide a lot of cushion for any financial stresses or enrollment fluctuations. With overall per-pupil funding beginning to stabilize in many of the states and districts where we rate charter schools, we expect that coverage for the higher-rated institutions will increase a little in the next few years as operations normalize or at least begin to recover. Cash levels Cash levels and their trends are an important factor in our analysis since they provide a sense of each school's financial ability to address various situations or unexpected events. Despite the various operating pressures that charter schools have experienced in the past few years, enrollment growth and generally positive financial performance have slowly grown cash levels, particularly for the investment-grade rated schools. The 'BB+' and 'BBB-' schools significantly increased their cash levels year-over-year as certain states (primarily Minnesota and California) that had instituted holdbacks were able to return to normal distributions, thus allowing the schools to plan and manage their liquidity better. The decline in days' cash for the 'BB' and 'BB-' rated schools is reflective of the limited flexibility for such schools and indicative of diverging credit quality between investment-grade and speculative-grade schools. In the future, we anticipate days' cash on hand will increase for most of the investment-grade schools we rate. Table 3 Charter Schools Standard & Poor's Rates Publicly Obligor Obligor State Rating Outlook 21st Century Charter School of Gary Inc. IN BB- Stable A.W. Brown-Fellowship Charter School TX BBB- Stable Advanced Technology Academy MI BBB- Stable Albert Einstein Academies CA BB Stable Allen Academy MI BB+ Negative Alliance for College-Ready Public Schools CA BB+ Stable American Heritage Education Foundation CA BB- Stable Arizona Agribusiness & Equine Center Inc. AZ BB+ Stable Arlington Classics Academy TX BB+ Stable Ashland School Inc. NJ BBB Stable Aurora Academy Charter School CO BBB- (ICR) Stable Avon Grove Charter School PA BBB- Stable Bay Haven Charter Academy Inc. FL BBB- Stable Benton County Charter School Organization Inc. AR BBB Negative Bradford Academy MI D N.M. Bronx Charter School for Excellence NY BBB- Stable Campus Community School DE BBB- Stable Candeo Schools Inc. AZ BB+ Stable Career Success Charter School AZ BB Stable Carolina International School NC BB+ Stable Castle Rock Lifelong Learning Center CO BBB (ICR) Stable Center for Academic Success Inc. AZ BBB- Stable Cesar Chavez Academy MI BBB- Stable WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 8 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 3 Charter Schools Standard & Poor's Rates Publicly (cont.) Cesar Chavez Public Charter School DC BBB- Stable Chandler Park Academy MI BBB Stable Charter Facilities Management - Indianapolis LLC IN BB Stable Charter Facilities Management -- Northwest Indiana LLC IN BB Stable Charter High School for Architecture and Design PA BBB- Stable Charter School for Applied Technologies NY BBB- Negative Charter School of Boynton Beach FL B Negative Charter School of Educational Excellence NY BB Stable Cheyenne Mountain Charter Academy CO BBB- (ICR) Stable Chicago Charter School Foundation IL BBB+ Negative Choice Academies Inc. AZ BB+ Stable Choices in Learning Elementary Charter School FL BBB- Stable Classical Academy Charter School CO BBB (ICR) Stable Classical Academy, Inc. CA BB+ Stable Coastal Academy Charter School Inc. CA BBB- Stable Collegiate Academy Charter School CO BB (ICR) Negative Collegium Charter School PA BBB- Negative Colorado Springs Charter Academy CO BB (ICR) Negative Community Academy Public Charter School DC B+ Negative Community Leadership Academy CO BB Stable Community of Peace Academy MN BBB- Stable Compass Public Charter School ID BB+ Stable Conner Creek Academy East MI BB- Negative Coral Academy of Science-Las Vegas NV BBB- Stable Cornerstone Schools FL BB+ Stable Creative Montessori Academy MI BBB- Stable Crossroads Charter Academy MI BB+ Stable DaVinci Academy of Science & the Arts UT BBB- Stable DCS Montessori Charter School CO BBB- (SPUR) Stable DeKalb Academy of Technlogy & Environment GA BBB- Stable Detroit Community Schools MI B Watch Neg Detroit Service Learning Academy MI BB+ Stable Detroit West Prep Academy MI BB- Stable Discovery Charter School PA BB+ Negative Dr. Joseph F. Pollack Academy Center of Excellence MI BB Stable Duluth Public School Academy MN BBB- Stable Eagle Advantage Schools Inc. TX BBB- (ICR) Stable Eagle Ridge Academy MN BBB- Stable Eagle South Mountain Properties (Eagle College Prep) AZ BB+ Stable Edkey Inc. AZ BB+ Stable Entheos Acad UT BB+ Stable Evolution Academy Charter School TX BB- Negative WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 9 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 3 Charter Schools Standard & Poor's Rates Publicly (cont.) Explore Knowledge Foundation NV BBB- Stable Faith Family Charter School TX BBB- Positive First Philadelphia Preparatory Charter School PA BB Stable Flint International Academy MI BBB- Negative Foxborough Regional Charter School MA BBB Stable Friendship Public Charter School DC BBB Stable Frontier Academy CO BBB- (ICR) Negative George Washington Academy UT BB+ Positive Gertz-Ressler Richard Merkin 6-12 Complex CA BBB- Stable Global Concepts Charter School NY BBB- Positive Global Leadership Academy Charter School PA BBB- Stable Golden Rule School, Inc. TX BB+ Stable Grand Traverse Academy MI BB+ Stable Green Woods Charter School PA BB Stable G-Star School of the Arts FL B+ Negative Hanley International Academy MI BBB- Stable Harmony Public Schools TX BBB Stable Harvest Preparatory Academy AZ BBB- Stable Higher Ground Academy MN BBB- Stable Highline Academy Charter School CO BBB- Stable Hmong Education Reform Co. MN BB+ Stable Holly Academy MI BBB- Stable Horizon Community Learning Center AZ BBB Stable ICEF Public School CA BB Stable Idaho Arts Charter School ID BBB- Negative Idea Public Schools TX BBB Stable Independence Charter School PA BBB- Positive Irvington Community School Inc IN BB- Negative Karl G. Maeser Preparatory Academy UT BBB- Stable King Chavez Academies CA BB+ Stable KIPP DC DC BBB+ Stable KIPP LA Schools CA BB+ Stable Kipp Inc. TX BBB (ICR) Negative Lady Liberty Academy Charter School NJ BB Watch Neg Lakes International Language Academy MN BBB- Stable Lakeview Academy UT BBB- Stable Landmark Academy MI BBB- Negative Learning Gate Community School FL BB Stable Lee County Charter Schools FL BB Stable Legacy Preparatory Academy UT BBB- (ICR) Stable Legacy Traditional School AZ BB Stable Liberty Charter School ID BBB- Stable WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 10 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 3 Charter Schools Standard & Poor's Rates Publicly (cont.) Liberty Common Charter School CO BBB- (ICR) Stable Life School of Dallas TX BBB- (ICR) Stable Lincoln Academy UT BBB- (ICR) Stable Lincoln Academy Charter School CO BBB- (ICR) Stable Literacy First Charter School CA BBB- Stable Littleton Academy Charter School CO BBB (ICR) Stable Littleton Preparatory Charter School CO BB+ Stable Magnolia Science Academy-1 CA BB Positive Mariana Bracetti Academy Charter School PA BB Stable MaST Community Charter School PA BBB+ Negative Math & Science Academy MN BBB- Stable Milwaukee Academy of Science WI BBB- Stable Monticello Academy UT BBB- (ICR) Stable Monument Academy CO BBB- Negative Navigator Pointe Academy UT BBB Stable New Branches School MI BB+ Stable New Designs Charter School CA BBB- Negative New Foundations Charter School PA BB+ Stable New Frontiers Charter School TX BBB Stable Newark Charter School, Inc. DE BBB Stable Noah Webster Basic Schools, Inc. AZ BBB- Negative Noble Network of Charter Schools IL BBB Stable North Davis Prepatory Academy UT BBB- Stable North Star Academy UT BBB- Stable Nova Academy TX BBB- Stable Nova Classical Academy MN BBB- Stable Oakland International Academy MI BBB- Stable Odyssey Academy, Inc. TX BBB- Stable Ogden Preparatory Academy UT BBB- (ICR) Stable Old Redford Academy MI BB Negative Orenda Education TX BBB- Stable PACT Charter School MN BBB- Stable Paradigm High School UT BB- Stable Paradise Education Center AZ BB+ Stable Parker Core Knowledge Charter School CO BBB- (ICR) Stable Partnerships to Uplift Communities (PUC) PUC Valley CA BB Stable PUC (Partnerships to Uplift Communities) Schools; Five Schools CA BB+ Stabke Paterson Charter School for Science & Technology NJ BBB- Negative Patterson Park Public Charter School MD BBB- Stable Peak to Peak Charter School CO BBB+ (ICR) Negative Philadelphia Performing Arts Charter School PA BB- Stable Phoenix Collegiate Academy AZ BB+ Stable WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 11 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 3 Charter Schools Standard & Poor's Rates Publicly (cont.) Pinnacle Charter School CO BBB (ICR) Negative Platte River Academic Charter School CO BBB (ICR) Stable Plymouth Educational Center Charter School MI BB- Stable Pointe Educational Services AZ BBB- Stable Propel Charter Schools - East PA BBB- Stable Propel Charter Schools - McKeesport PA BBB- Stable Propel Charter Schools - Montour PA BBB- Stable Propel Schools - Braddock Hills PA BB+ Stable Providence Hall UT BBB- (ICR) Stable Renaissance Public School Academy MI BBB- Stable Richard Allen Preparatory Charter School PA BB+ Negative Richfield Public School Academy MI BBB- Stable Riverhead Charter School NY BBB- Stable Riverwalk Education Foundation Inc TX BBB- (ICR) Stable Rocklin Academy CA BB+ Negative Rocky Mountain Academy of Evergreen CO BBB- (ICR) Negative Rocky Mountain Classical Academy CO B+ Stable Ronald Wilson Reagan Academy UT BBB- Stable Russell Byers Charter School PA BBB- Negative SABIS International Charter School MA BBB Stable Saginaw Preparatory Academy MI BBB- Stable Santa Rosa Academy Inc CA BB Stable Sarasota School of Arts & Sciences FL BBB- Stable School Lane Charter School PA BBB Stable School of Excellence in Education TX BB+ Stable Sculptor Charter School FL BBB- Stable SER-Ninos, Inc. TX BBB- Stable South Bronx Charter School for International Cultures and the Arts NY BB+ Stable Spectrum High School MN BBB- Stable St. Croix Preparatory Academy MN BB Stable St. Paul Conservatory for Performing Arts MN BBB- Stable Star International Academy MI BBB Stable Stargate Charter School CO BBB- Stable Summit Academy North MI BB Stable Summit Academy MI BB Negative Summit Academy UT BBB- Stable Tacony Academy Charter School PA BB+ Stable Tejano Center for Community Concerns, Inc. TX B+ Negative Telesis Center for Learning, Inc. AZ BB Stable Terrace Community Middle School FL BB+ Stable Texas Leadership Charter Academy TX BB+ Stable The John H. Wood Jr. Charter District and Inspire Academies TX BBB- Stable WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 12 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 3 Charter Schools Standard & Poor's Rates Publicly (cont.) Thea Bowman Charter School IN BB- Negative Thomas Jefferson Classical Academy NC BBB- Stable Trinity Basin Preparatory (Dallas) TX BB+ Stable Tucson Country Day School AZ BB+ Negative Twin Cities German Immersion School MN BB+ Stable Twin Peaks Charter Academy CO BBB- (ICR) Negative Universal Academy MI BBB- Negative Universal Academy TX BB Stable Universal Learning Academy MI BBB- Negative UNO Charter School Network IL BBB- Stable Uplift Education TX BBB- Stable Value Schools Inc. CA BB+ Stable Victory Charter School ID BBB- Stable Vista at Entrada Charter School UT BB+ Stable Voyageur Academy MI B Watch Neg Wasatch Peak Academy UT BBB- (ICR) Stable Wayside Schools TX BB+ Stable West Philadelphia Achievement Charter Elementary School PA BB+ Negative Windsor Charter Academy CO BBB- Negative Winfree Academy Charter Schools TX BB Negative Woodrow Wilson Academy Charter Schools CO BBB (ICR) Stable World Learner Charter School (Chaska) MN BB+ Stable Yinghua Academy MN BB Stable As of June 16, 2014 Table 4 Glossary Of Selected Charter School Ratios Term Definition Total revenues ($000s) Includes all unrestricted revenues earned by the charter school (state, federal, local, program revenues, based on GASB governmentwide or FASB accounting) Total expenses ($000s) Includes all expenses incurred by the school (based on GASB governmentwide or FASB accounting) EBIDA ($000s) Net income before interest, depreciation, and amortization expenses EBIDA margin (%) (EBIDA / total revenue) X 100 Excess revenues over expenses ($000s) Total revenues - total expenses Excess income margin (%) (Excess revenues over expenses / total revenues) X 100 Lease-adjusted debt service coverage (x) (EBIDA + operating lease expenses) / (current debt service + lease payments for facilites + capital leases) MADS ($000s) Maximum annual debt service based on current debt portfolio Lease-adjusted MADS coverage (x) (EBIDA + operating lease expenses) / (MADS + lease payments for facilites+ capital lease payments) Lease adjusted MADS as % of state aid 100 X (MADS + lease payments for facilites + capital lease payments)/state revenues Lease-adjusted MADS debt service burden 100 X (MADS + lease payments for facilites + capital lease payments)/total expenses WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 13 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals Table 4 Glossary Of Selected Charter School Ratios (cont.) Balance sheet metrics Unrestricted days' cash on hand Unrestricted cash / ((total expenses depreciation and amortization expense) / 365) Total unrestricted cash to debt (%) 100 X unrestricted cash / total long-term debt Unreserved net assets as % of expenses 100 X unreserved net assets /( total expenses - depreciation and amortization expense) FASB--Financial Accounting Standards Board. GASB--Governmental Accounting Standards Board. MADS--Maximum annual debt service. Related Criteria And Research Related Criteria U.S. Public Finance Criteria: Charter Schools, June 14, 2007 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 25, 2014 14 1336948 | 302218478 U.S. Charter School Ratings Continued To Slip As 2013 Medians Sent Mixed Signals S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. 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