Fitch Ratings placed all charter school bonds it rates on Rating Watch Negative after adopting changes to how it evaluates such credits.

The action Tuesday came after Fitch in July released a draft outlining proposed changes to its rating criteria for charter schools and seeking feedback.

Fitch said it had adopted new charter school rating criteria, including increased emphasis on external risks, more financial requirements and rating caps.

Fitch states that the new rating criteria would lead to a rating ceiling of BBB-plus for charter schools without enhancement. Some Colorado charter school bonds rated by Fitch are enhanced by the moral obligation of state government and are currently rated single-A.

“Fundamentally, Fitch views charter schools as inherently non-investment grade because of their typically high leverage and lack of operational and financial flexibility,” Fitch wrote.

The adopted rating criteria are very similar to that proposed in the exposure draft, said Fitch Ratings director Eric Kim.

Fitch put 124 bonds issued for 26 charter schools it rates on Rating Watch Negative. Fitch placed the bonds of an additional charter school, Aspire Public Schools of California, on negative rating watch in June. They remain on negative rating watch.

Fitch expects to review all the charter school ratings in the next six months using the new criteria. If the ratings are changed, Fitch will announce the changes with rationales for the actions. Fitch will make one, two or three announcements of all the charter school rating changes and not separate ones for each school rating change, Kim said.

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