Colorado Educational Cultural Facilities Authority Bonds Outlook To Positive From Stable On Improved Financial Profile

Stocks and Financial Services Press Releases Wednesday June 13, 2018 09:23
DALLAS--13 Jun--S&P Global Ratings

DALLAS (S&P Global Ratings) March 28, 2017--S&P Global Ratings revised its outlook to positive from stable on Colorado Educational and Cultural Facilities Authority's (CECFA) series 2013 charter school revenue bonds supported by Community Leadership Academy Building Corp. II and issued for Community Leadership Academy (CLA). S&P Global Ratings also revised its outlook to positive from stable on CECFA's series 2008 charter school revenue bonds outstanding, which are supported by Community Leadership Academy Building Corp. I and are also issued for CLA. At the same time, S&P Global Ratings affirmed its 'BB' rating on the series 2013 and series 2008 bonds.

"We base the positive outlook on CLA's recently improved financial profile as demonstrated by stronger liquidity levels and stronger maximum annual debt service coverage," said S&P Global Ratings credit analyst Brian Marshall.

We assessed CLA's enterprise profile as adequate characterized by solid academic scores and retention rates, but offset by a declining enrollment and the waiting list in fall 2016. We assessed the academy's financial profile as vulnerable, despite recent improvements in operations and cash position, based on CLA's relatively small operating base and high debt burden. We believe that combined, these credit factors lead to an indicative stand-alone credit profile of 'bb' and a final rating of 'BB'.

In our view, the rating reflects our view of the academy's:
  • Solid lease-adjusted maximum annual debt service (MADS) coverage of 1.7x based on fiscal 2016 audited results compared with 'BB' medians;
  • Very healthy liquidity with 195 days' cash on hand, based on fiscal 2016 up from 128 days' cash on hand in fiscal 2015; and
  • Academic performance stronger than both the state and local school district.The rating reflects our opinion of the following credit risks:
  • CLA's very high debt burden of almost 17% based on fiscal 2016 numbers compared with 'BB' medians;
  • A management structure with limited formal policies tempered by cross-training of administrators to shore up CLA managerial capital; and
  • The possibility (as with all charter schools) that CLA could lose its charter before the bonds' final maturity.
Management used 2013 bond proceeds to fund the construction of the Quebec Street facility and refund the interim financing the CLA incurred to acquire the land and set up modular buildings on this site.

The positive outlook reflects our view that there is a one-in-three chance of a higher rating within the one-year outlook horizon based on CLA's recently improved financial profile as evidenced by stronger cash levels and solid MADS coverage, which we expect to continue. We expect that the charter school will maintain its existing enrollment levels and academic reputation. We also expect the academy will continue to generate positive operations on a full accrual basis, while maintaining a liquidity position similar to current levels.

We could consider an upgrade if the school demonstrates a sustained trend of maintaining a cash position near current levels as well as a longer trend of MADS coverage that is consistent with the higher rating category and above 1.25x, while maintaining its enrollment and demand profile, and impressive academic performance.

We could lower the rating if enrollment declines significantly and leads to a material depletion of cash levels and a decline in coverage that are no longer commensurate with the 'BB' rating level.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.


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