DALLAS — The first Texas charter school to issue bonds with a state Permanent School Fund guarantee saw its yields lowered up to 7 basis points, according to officials involved in the deal.
The Life School of Dallas priced $92 million of bonds through negotiation with senior manager RBC Capital Markets on April 30.
The sale included $85.6 million of tax-exempt fixed-rate bonds maturing serially through 2044 with the PSF guarantee and $6.5 million of taxable Qualified School Construction Bonds.
The bonds were sold at a combined interest rate of 3.8%, net of the federal tax credit for the QSCBs.
Although the school's underlying BBB-minus rating from Standard & Poor's is fairly typical for creditworthy charter schools, the bonds carried an enhanced rating of AAA through the Permanent School Fund that backs bonds issued by public school districts in Texas.
"This is truly a game changer for us and will give all charter schools broader access to investors which in the end will lower borrowing costs," said Scott Fuller, Life School chief of staff, in a May 5 statement.
The tax-exempt bonds were issued through the Arlington Higher Education Finance Corp. to refund existing debt and finance new facilities, including a new high school in Waxahachie to accommodate student growth.
RBC said the deal attracted significant demand, which resulted in yields being lowered by 1 to 7 basis points in nearly every maturity. Life School saved 24% of the principal amount of the bonds being refunded or $9 million present value savings, the underwriter said. Gross savings were $13 million.
Texas approved up to $727.4 million of charter school financing guarantees this year after passage of legislation allowing the credit wrap in the 2013 Texas Legislature. This is the first issuance under this plan with others expected in the near term, officials said.
Standard & Poor's, the only ratings agency to rate the debt, established the school's issuer credit rating at the threshold of investment-grade credits.
"We may lower the ICR during the outlook period if the school is unable to meet projections causing deterioration in financial operations or the balance sheet," S&P analyst Luke Gildner wrote. "We believe that Life School is at its debt capacity for the current rating level, and do not expect to take a positive rating action during the two-year outlook period."
Life School's new 125,000 square foot, state-of-the art campus in Waxahachie, a suburb south of Dallas, will serve a thousand high-school students beginning in August 2015.
Life School opened as a public charter school in 1998 and has campuses in Oak Cliff, West Dallas, Cedar Hill, Lancaster, Red Oak and Waxahachie.
School districts in the state have had general obligation debt guaranteed by the Permanent School Fund since 1985.
The 2011 Texas Legislature extended the coverage to public charter schools with an investment-grade credit rating. Total enhancement available to Texas charter schools is capped at about 5% of the PSF's total available capacity, based on the number of students enrolled in the schools statewide.
The legislature in 2013 added coverage for refunding debt issued by charter schools. The refunding enhancement total is capped at 50% of the new-money charter school bonds with PSF coverage. Refunding issues must provide present value savings and cannot extend the maturities of the refunded debt.
