Standard & Poor's Ratings Services said it has lowered its long-term rating on the Texas Public Finance Authority Charter School Finance Corp.'s revenue bonds, series 2004A, issued for the School of Excellence in Education (SEE), to BB from BB-plus.
The outlook is stable.
"The downgrade reflects our assessment of the school's significant enrollment declines in the past two years due to increased competition," said Standard & Poor's credit analyst Laura Kuffler-Macdonald.
The downgrade also reflects the unrestricted operating deficits in recent years, resulting in insufficient lease adjusted debt service coverage (DSC) of 0.9x in fiscal 2014, according to S&P's calculations. However, school officials report SEE still complies with its bond covenants because the school has positive operations when temporarily restricted funds are also included.
The BB rating reflects the school's weak demand profile and operating performance, which SEE's long operating history, low debt burden, and strong cash levels offset. Given the school's lack of waitlist, the rating agency expects enrollment stabilization, and resulting financial improvement, will take time.
SEE, which primarily serves economically disadvantaged students, is an open-enrollment public charter school in north-central San Antonio. SEE operates seven schools on five campuses, one of which is leased.
The stable outlook reflects the school's relatively strong cash position. The agency could lower the rating in the one-year outlook period should enrollment continue to decline, resulting in operating deficits that affect the liquidity position.
The agency does not expect to raise the rating during the outlook period. Beyond then, it could consider a positive rating action should SEE's demand profile improve, or if operations improve such that the school generates at least 1x unrestricted lease-adjusted DSC.
