Following the application of updated rating criteria, Fitch Ratings has taken actions on 28 charter school ratings, downgrading 23.

As a result, Fitch's charter school ratings are now predominately speculative-grade, with 20 below BBB-minus.

"Specifically, operating history and financial and debt profile, including high leverage, are generally speculative grade for most of Fitch's portfolio of charter schools," analysts said in a report released Friday.

The actions resulted in 19 charter school ratings downgraded with a stable outlook, two ratings downgraded with a negative outlook, and two more downgraded, remaining on negative watch. The downgraded debt totals close to $650 million.

Fitch noted rapid deterioration in fundamental credit quality for charter school transactions in several cases, as well as unanticipated enrollment declines, poor management actions, and sharp financial weakening.

"This rapid decline in credit quality illustrates the volatility inherent in most charter school financing and is one factor limiting the ratings for the sector," analysts Eric Kim and Joanne Ferrigan wrote in the report.

Four ratings were affirmed with stable outlooks.

St. Louis Charter School in Missouri was the only one to have its rating upgraded during the review. The upgrade of $4.1 million of revenue bonds to BBB from BBB-minus reflects the school's successful track record, positive operating performance, and manageable leverage position.

Some of the charter schools that were downgraded include Aspire Public Schools in California, Renaissance Charter School Inc. in Florida, and American Charter Schools Foundation in Michigan.

Fitch released a draft in July last year outlining proposed changes to its charter school ratings criteria, and after its publication in September, the agency placed 27 charter school ratings on rating watch negative. One of the ratings was split into two, resulting in the total amount of 28 ratings reviewed.

Emphasis on external risks, more financial requirements and rating caps were among some of the changes in criteria.

Fitch believes its charter school ratings will likely remain predominantly speculative-grade for the foreseeable future.

"Under Fitch's updated rating criteria, expectations for investment-grade ratings are generally beyond the reach of most charter schools," analysts said. "Fitch will continue to monitor developments in its portfolio and the general charter school marketplace and take rating action when appropriate."

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