Based on fiscal year 2011 independent K-12 school medians, the sector has remained resilient as it has recovered from the financial crisis, but credit pressures still remain, according to a recent report from Moody's Investors Service.

The medians show net tuition and enrollment increases, strengthening philanthropic support, and solid balance sheet growth among the independent schools.

"These indicators demonstrate that the sector retains some surprising credit strengths despite the very small size of many of these schools," analysts wrote in the report. "Early analysis of fiscal year 2012 data shows a continuation of these trends, although balance sheets stagnated due to weak investment returns."

Moody's currently rates 44 independent private schools on an underlying basis, with $1.43 billion of debt outstanding. The median rating is A1, with the average rating rising to Aa3 when weighted by the amount of debt outstanding.

These ratings remained fairly stable during 2012, with approximately 15% of the portfolio experience an outlook or rating change. There were two downgrades, two outlook changes up, and three outlook changes down. Of the rated portfolio, only four schools have a negative outlook.

Based on 2011 medians, tuition pressure on independent schools subsided as the economy improved. About 30% of the rated portfolio has experienced robust net tuition per student growth of greater than 5% over the prior year. Only 4% of rated schools had a decline in net tuition per student, compared to 16% in fiscal year 2010.

Median growth of net tuition per student has outpaced inflation, with a 3.5% increase. However, growth remains slower than pre-recession levels.

"We expect that near-term median net tuition per student growth will stay below pre-recession rates as the economy remains sluggish and household wealth remains depressed," analysts wrote.

Though tuition remains low, enrollment has rebounded to pre-recession levels. The median enrollment increased to 682 students from 672 students the year before, representing a 1.5% median increase. The peak median enrollment during the fall of 2009 was 684. The report also found that the schools saw little to no dip in applications. Moody's expects enrollment to remain relatively stable and solid demand to continue.

Despite these positive results, credit pressures still persist as revenue is growing more slowly than before the financial crisis and higher spending is contributing to narrower operating margins, according to the report.

Moody's expects that most independent schools will continue to be challenged in 2013 and 2014.

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