Standard & Poor's Ratings Services said it has lowered the long-term rating to B from BB on the Michigan Finance Authority's $17.4 million series 2011 public school academy limited obligation revenue bonds issued for Voyageur Academy (Voyageur) and placed the rating on CreditWatch with negative implications.
"The rating action reflects our view of Voyageur's second consecutive fiscal year with a massive governmentwide operating deficit, which has subsequently resulted in very weak coverage ratios," said Standard & Poor's credit analyst Ashley Ramchandani. "Despite the fact that Voyageur's enrollment continued to increase, albeit only minimally, the spring 2013 headcount of 1,139 was well below the budgeted 1,244 figure. In addition, the trends of weak operations have deteriorated a once sound unrestricted liquidity position to just 20 days of cash on hand as of fiscal year-end 2013," added Ramchandani.
This metric was down from the 96 days' cash on hand the academy maintained just a year prior. Management reported to Standard & Poor's during its last review, that the board-approved fiscal year-end 2013 general fund budget would realize a $72,000 surplus.
The CreditWatch with negative implications reflects the increased credit risk posed by the lack of timely and sufficient information from the school as it relates to the decision to change management companies. Per a special board meeting on March 14, 2014, Voyageur voted to engage the services of American Promise Management (APM) and discontinue the services with long-time partner The Leona Group Management Co.
The unanimous decision was made in the presence of the charter authorizer, Ferris State University (FSU), both management companies, and the public. The transition to APM will begin immediately whereas The Leona Group will continue to serve in their current capacity until the contract expires on June 30, 2014. Standard & Poor's has not reviewed the management contract, specifically as it relates to terms and fees. In addition, it is unclear if APS will alter Voyageur's current mission or operating strategy.
Per information provided to Standard & Poor's, Voyageur is also in violation of its liquidity and debt service ratio bond covenants, as mandated by the series 2011 financing agreement.
Initially chartered in 1998 by FSU, Voyageur serves underprivileged, school-age children on the west side of inner-city Detroit. Voyageur-Consortium Academy serves about 1,150 students in kindergarten through grade 12. For grades K-8, the school operates under the Voyageur Academy name whereas the high school operates under a separate interlocal agreement as Consortium College Preparatory High School (CCPHS).
