KIPP LA Charter Schools Receive BB-Plus from S&P

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LOS ANGELES — A Los Angeles charter school received a junk rating of BB-plus with a stable outlook from Standard & Poor's ahead of a $35 million new money and refunding deal.

The educational facilities revenue bonds are expected in June, using the California School Finance Authority conduit issuer for borrower KIPP LA.

The $29.8 million Series 2014A and $295,000 taxable series 2014B bonds would be secured by the revenues of four of KIPP LA's schools.

Robert W. Baird & Co. is the underwriter, Buck Financial is financial advisor, and Orrick, Herrington & Sutcliffe, LLC is bond counsel.

The bonds will be sold as a limited public offering, according to a CSFA staff report. The proceeds will finance and refinance the acquisition, construction, expansion renovation and improvements of four KIPP LA schools.

KIPP LA currently operates nine charter schools on 11 campuses throughout South and East Los Angeles that serve 3,000 students.

KIPP LA is part of the larger KIPP, Knowledge is Power Program, network of schools that began in 1994. Currently, there are 141 schools in 20 states and Washington D.C., which serve more than 50,000 students that are part of the larger KIPP network.

The S&P rating does not apply to KIPP LA as a whole, but analysts said they view this "obligated group as strategically important to KIPP LA and both the stand alone credit profile and group credit profile as BB-plus" with a stable outlook.

KIPP LA is in the middle of significant growth, which tempers its very good academic scores and solid operations, S&P analysts said.

"We recognize that management is adept at growth and fundraising, which somewhat mitigates the risk surrounding KIPP's tripling in size during the next six years," S&P analysts said in the report.

The four schools in the obligated group include one of KIPP LA's oldest schools and two of its newest schools. Management anticipated the obligated group's schools to be at enrollment capacity in fiscal 2017. Liquidity in fiscal 2013 was good at both the parent, KIPP LA, and the obligated group level, although it was challenged in fiscal 2012, management expects it will be stronger in fiscal 2014, analysts said.

The rating takes into account significant risk as two of the four obligated schools are brand new and two more schools are slated to open in fall 2014 with the possibility of more debt at the parent level within two years, although there is currently some debt capacity, according to the S&P report.

KIPP LA currently has $11 million of debt in bank loans and from funding intermediaries. Post issuance, debt is anticipated to be about $35 million, primarily held at the obligated group.

Debt service is anticipated to be level at about $2.3 million over 30 years.

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