Standard & Poor's Ratings lowered its long term rating on the Milwaukee Redevelopment Authority, Wis.' $12 million series 2013 redevelopment education refunding revenue bonds issued on behalf of the Milwaukee Science Education Corp. Inc., doing business as Milwaukee Academy of Science, to 'BB+' from 'BBB-'. The outlook is stable.
"The downgrade reflects two years of operating deficits, and a history of uneven financial performance, which has led to variable coverage levels," said Standard & Poor's credit analyst Laura Kuffler-Macdonald. In addition, the maximum annual debt service (MADS) of 1.1x is not consistent with the 'BBB-' rating.
The rating reflects our view of the school's: • History of fluctuating operating performance, with fiscal years 2014 and 2015 generating an operating deficit; • MADS coverage of 1.1x, resulting in very limited flexibility for operating pressures; • No waiting list, although retention remains moderately good; and • Inherent uncertainty associated with charter renewals given that the bonds' final maturity exceeds the time horizon of the existing charter.
Partially offsetting the above weaknesses, in our view, are the schools: • Relatively large revenue base, with more than 1,000 students; • Specialized curriculum emphasizing the sciences, which continues to serve as a competitive edge; • Independent authorizer in the form of the City of Milwaukee rather than a competing school district; • Solid liquidity position for the rating; and • Manageable debt levels, with no near-term plans to significantly increase debt.
The academy is a public kindergarten through 12th-grade (K-12) charter school in downtown Milwaukee. The $12 million series 2013 fixed-rate bonds is the school's only debt. School revenue and a mortgage on the school's facilities secure the bonds. Among the facilities excluded from the mortgage are the unoccupied topmost seven floors of a tower that the school is exploring divesting.
The stable outlook reflects or view that the school will maintain its demand profile, good academic performance and will improve its operations to achieve breakeven operating results.
Although we don't envision doing so over the one-year outlook period, we could lower the rating if enrollment level declines, MADS continue to produce negative operating margins, or if coverage declines below 1x.
A higher rating is unlikely in the next year but is possible beyond that if coverage levels exceed 1.5x, cash improves to more than 100 days, and debt levels remain manageable.
