Fitch Affirms Enterprise Charter School (NY) at 'BBB'; Stable Outlook

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings affirms its 'BBB' rating on approximately $7.3 million of Buffalo & Erie County Industrial Land Development Corporation's (NY) Enterprise Charter School (ECS) revenue bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of revenues of ECS, a first mortgage lien on the facilities of ECS, assignments of rents and leases receivable and a cash funded debt service reserve fund.

KEY RATING DRIVERS

STABLE CREDIT CHARCTERISTICS: The 'BBB' rating is supported by strong student demand, successful financial operations, a fairly low, manageable debt burden, particularly as compared to other charter schools at its rating level, adequate and improving liquidity levels, and community and local school district support. Counterbalancing the aforementioned factors is ECS' challenge in maintaining compliance with annual yearly progress (AYP) requirements.

AYP CHALLENGES: The school did not achieve one of three AYP metrics in both fiscal 2010 and 2011, and in the past has had difficulty consistently meeting academic standards as mandated under its charter. Failure to address this issue could have negative implications for charter renewal and for its credit profile.

ENROLLMENT DRIVES OPERATIONS: Full enrollment at ECS supports consistently positive operating margins. Lower operating costs due to acquisition of school facilities, increased state funding levels and limited capital needs continue to bolster financial performance.

MANAGEABLE DEBT BURDEN: Pro forma maximum annual debt service (MADS) comprises 10.5% of fiscal 2011 operating revenues, which is fairly low for a charter school. Debt manageability is further evidenced by consistent coverage of debt service at or above 2 times (x) from operations.

STANDARD CHARTER SCHOOL CONCERNS: Like all charter schools, ECS faces charter renewal risk and its financial profile is directly impacted by volatility in state aid. While prudent budgetary practices enabled ECS to effectively manage the latter risk, and the school has had its charter successfully renewed 2 times, failure to meet AYP could negatively affect future renewals.

CREDIT PROFILE:

ECS operations are stronger than the general complement of charter schools of similar size and has yielded positive margins for the past six fiscal years, averaging 4.7% from 2006-2010 and attaining a strong 15.7% in fiscal 2011. The improvement in fiscal 2011 was due to increased per pupil aid funding (to $12,005 per student from $10,429 per student) and reduced operating costs.

Per pupil funding has been set by the state of New York (the state, general obligation bonds rated 'AA' by Fitch) at $12,005 per student, up 15.1% from $10,429 for the past year. Moreover, with ECS' acquisition of its facilities in fiscal 2010, it effectively replaced higher leasing costs with lower annual debt service requirements; the differential between lease payments and debt service is approximately $250 thousand annually. In Fitch's view, stability of ECS' primary revenue stream coupled with lower facilities costs should sustain recent operating improvements as long as enrollment trends continue and other operating costs are prudently managed.

Liquidity, measured by available funds, or cash and investments not permanently restricted, was enhanced during fiscal 2011 due to funds received from a settlement with the local school district for frozen per pupil aid payments, replenishment of certain expenditures from bond funds and the previously mentioned state funding improvements. Available funds increased to $1.86 million covering fiscal 2011 operating expenses and long-term debt by 37.8% and 25.6%, respectively; both metrics compare favorably to other charter schools rated 'BBB' by Fitch. ECS has limited capital needs going forward and total outstanding debt of $7.3 million generates maximum annual debt service (DS) equaling a manageable 10.5% of unrestricted operating revenue. ECS debt burden is moderately low for the charter school sector.

ECS continues to benefit from strong demand with full enrollment of 405 students and had a wait list of over 100 potential candidates for school year 2010-2011. Fitch acknowledges that ECS operates in a demographically challenging environment and performs above expectations for similarly situated charter schools.

ECS did not meet the English Language Arts (ELA) AYP performance objective for the 2010-2011 year; both Mathematics and Science requirements were met. ECS intends on meeting the required targets by utilizing in class academic intervention and rewarding instructors who achieve their goals. An inability to consistently meet AYP could potentially subject ECS' charter to withdrawal which would have severely negative credit implications. The new principal, who has turnaround experience with the local school district, is diligently following teacher review and improvement plans to help ECS' achieve and maintain AYP standards beyond the current school year.

ECS initiated operations in 2003 in the City of Buffalo, NY. ECS provides education to 405 students in grades K-8. ECS at inception was the only charter school authorized by a local school district in the state. The local school district continues to have an involved and beneficial relationship with the school.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated June 20, 2011;

--'Charter School Rating Criteria', dated Aug. 10, 2011.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

Charter School Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648052

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