Standard & Poor's Ratings Services said it raised its long-term rating on Arlington Higher Education Finance Corp., Texas' series 2010A education revenue bonds, series 2010B education revenue and refunding bonds, and series 2010C taxable education revenue bonds issued for Arlington Classics Academy (ACA) to BB-plus from BB.
The outlook is stable.
"The rating reflects our assessment of ACA's improvements in operating performance and liquidity over the past two years," said Standard & Poor's credit analyst Luke Gildner. "It also reflects our view of ACA's management and policy changes that have remedied prior operational performance issues, and we believe there are now clearer reporting lines and more formalized, enforced policies in place to ensure budgeted expectations are met." The rating agency expects ACA will maintain strong operations over time while growing upper grades to fill out its second campus, which it recently opened.
"The rating further reflects our view of the charter school's improved maximum annual debt service coverage of 1.5x, good overall student demand, good liquidity, and strong student test scores, offset by the school's high debt burden and the need to grow demand and enrollment in sixth through eighth grades," added Gildner.
The stable outlook reflects the expectation that during the next year management will continue to meet enrollment and financial projections. Operations will be about break even and liquidity will be stable. Furthermore, capital plans will be funded from restricted internal funds and will not result in the issuance of additional debt.
The agency may take a positive action if the charter school can maintain its strong operating performance on a more consistent basis while growing middle school enrollment and liquidity. It could lower the rating if enrollment declines lead to below 1x MADS coverage, or deterioration in the balance sheet results in less than 45 days' cash on hand.
