S&P: Mathematics, Science, and Technology Community Charter School, PA Downgraded To 'BBB' From 'BBB+'
"The downgrade reflects the impact of MaST's plans for replication, the issuance of additional debt, and the subsequent application of our 'Group Rating Methodology' criteria," said S&P Global Ratings credit analyst Laura Kuffler-Macdonald.
In the fall, MaST I's plans to issue about $30 million in debt, the proceeds of which will refund the series 2010 bonds outstanding and construct new space on the Byberry Campus. In addition, the newly created MaST II will issue $20.3 million in debt to build new facilities it expects to open in 2017. The Isaac Newton Foundation will issue both series, which will be separately secured by collateral. Both entities must make lease payments to the foundation in amounts equal to debt service. We are applying our group ratings methodology to MaST I because we believe that the current organizational structure allows for MaST I to provide extraordinary financial support if required to either the foundation or MaST II. Furthermore, we believe MaST I is core to the foundation, and our revised rating reflects the group credit profile, which we base on the enterprise and financial profiles of both schools.
The rating further reflects our view of the MaST I's strong academic performance, strong demand profile, history of positive operations, and exceptionally strong cash reserves. However, we believe the substantial amount of debt being issued by the foundation and the start-up nature of MaST II are credit risks.
MaST I's demand profile includes good stable enrollment, a solid waitlist, and strong academic performance. The school is a kindergarten-grade 12 school serving approximately 1,320 students in school year 2015-2016. Its charter caps enrollment at 1,250 and it is operating at the cap. The school has consistently had a large wait list, with approximately 8,127 students for the 2016-2017 year, which is up significantly from the previous year. We consider the strong waitlist to be a credit strength.
The negative outlook reflects the additional debt that relies on significant growth in enrollment to support it. The outlook further reflects our view of the inherent uncertainties associated with the start-up of a new school and the requirement for the school to be financially sound to support its own debt service. Any potential operating or financial issues related to MaST II could negatively affect the rating.
We would lower the rating if coverage remains inadequate, additional enrollment does not support this debt, or liquidity declines significantly. Also, if MaST II has financial difficulties that result in a failure to generate excess revenues to adequately cover debt service. We do not believe that the combined organization has the capacity to issue additional debt at the current rating.
An outlook revision to stable is possible over the outlook period if the new school successfully opens and combined operations are positive generating adequate coverage and current liquidity levels are maintained. An upgrade is not likely over the outlook period given the current debt levels.