OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB-' rating on approximately $7.8 million in revenue bonds for the California Statewide Communities Development Authority. The bonds were issued on behalf of the Green Dot Public Schools (GDPS), Animo Inglewood Charter High School (AI).

The Rating Outlook is Stable.

The bonds are secured by pledged revenues of AI, including local control funding formula funds from the state of California (general obligation bonds rated 'A+'; Stable Outlook). Additional security provisions include a cash-funded reserve equal to maximum annual debt service (MADS).


SOUND FINANCIAL OPERATIONS: The 'BBB-' rating reflects AI's continued generation of sound operating margins and debt service coverage due to stable enrollment, increased per pupil funding, and good expense management through GDPS. AI has ample student demand and good flexibility with which to generate additional operating revenue if necessary.

ESTABLISHED OPERATING HISTORY: AI has a fairly long operating history and multiple charter renewals. In 2015, AI received its third charter renewal for a full term of five years, reflecting consistently strong academic results. AI is operated by Green Dot Public Schools, which manages 21 schools primarily in the greater Los Angeles area.

LIMITED LIQUIDITY: Liquidity held at AI is minimal, as funds and transactions are handled on its behalf by GDPS. Bond covenants require a fund balance of only 5% of the prior year's operating expenses. However, limited liquidity is partially mitigated by consistently strong operating results and oversight by GDPS.


STANDARD CHARTER RISKS: A limited financial cushion; substantial reliance on enrollment-driven, per pupil funding; and charter renewal risk are credit concerns common among all charter school transactions that, if pressured, could impact Animo Inglewood Charter High School's rating negatively over time.


Animo Inglewood is a charter high school located in Inglewood, CA. Certified in 2001 and initiating operations in 2002 with 140 freshman students, AI has received three charter renewals since creation, most recently in 2015 for a full five-year term. Fitch was unable to speak with AI's authorizer, the Inglewood Unified School District, prior to publication. However, AI's recent renewal and strong academic track record substantially mitigate charter renewal risk.

GDPS serves over 12,000 students across a network of 21 schools. Most schools are in the greater Los Angeles area, but GDPS now operates schools in Memphis, TN and Tacoma, WA. In exchange for a shared services fee, AI enjoys access to GDPS's favorable vendor contracts, academic and financial management support, and fundraising capabilities.


AI has strong academic results which drive sound demand and enrollment. Although future standards remain in development, AI's results on new statewide tests in spring 2015 exceeded district and state averages. AI remains within its target enrollment of 550-650, with 2014-2015 average daily attendance of 599, and maintains a large and up-to-date waitlist. The current facility has capacity for up to 850 students. Although AI's charter does not cap enrollment, the school intends to keep enrollment below 650 for academic reasons. Fitch views AI's excess capacity and strong demand as sources of financial flexibility if stressed; AI could enroll additional students and thereby increase its funding level.


AI continues to generate sound operating margins and coverage of debt service due to stable enrollment, increased per pupil funding, and good expense management through GDPS. AI has generated consistently positive operating margins averaging 11% from fiscal 2011 through fiscal 2014. Unaudited fiscal 2015 data suggest similarly positive results. These figures include the shared services fee paid to GDPS, which is technically subordinate to debt service. Positive operating margins and excess capacity to add students if necessary give AI additional operating flexibility. AI's operating strength and flexibility somewhat mitigate its high reliance (consistently over 70%) on per pupil funding, which is typical of charter schools.


The school's debt burden is high, with MADS consuming 10.8% of fiscal 2014 operating revenues. This level is within Fitch's minimum expectation of a MADS burden of 15% or less for investment-grade charter schools. In addition, Fitch believes that the high debt burden is manageable in light of strong operating margins, which drive sound coverage, and financial flexibility. Coverage of MADS from operations was sound at 2x in fiscal 2014, well above Fitch's baseline expectation of at least 1.0x MADS coverage for investment-grade charter schools. Excluding the subordinate shared services fee, fiscal 2014 coverage was stronger at 2.9x. There are no significant capital or debt plans related to Animo Inglewood at this time.


Liquid resources for AI are consolidated into GDPS's balance sheet. GDPS is required to maintain a minimum unrestricted fund balance at AI equal to 5% of AI's operating expenditures in the previous fiscal year, pursuant to a net asset covenant in the bond indenture. As a result, AI's balance sheet resources represent a very low 3.2% of net outstanding debt. However, limited liquidity is partially mitigated by consistently strong operating results and oversight by GDPS.

In addition, there remains an expectation by GDPS management that it would support AI, or any of its managed schools, to the extent possible if they encountered financial stress. Fitch believes that GDPS's adequate resource base and established fundraising platform could help offset AI's limited liquidity in a downside scenario. However, Fitch's rating does not assume any support from GDPS; GDPS resources are not pledged for payment of the bonds and are potentially subject to liquidation in support of other schools or expansion projects.