The Rating Outlook is Stable.
The bonds are secured by a senior lien on revenues and a lien on and security interest in certain real property on which KIPP's
The bonds rank on parity with around
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'BB+' rating primarily reflects a long operating history, punctuated by multiple charter renewals and a track-record of positive GAAP-based operating performance. Consistently healthy student demand and enrollment trends are supported by a demonstrated ability to produce favorable academic outcomes. Counterbalancing factors include significant financial leverage and thin balance sheet liquidity.
MARKET-LEADING POSITION SUPPORTS OPERATIONS: KIPP's strong reputation in the charter school landscape supports consistently solid student demand, which provides some financial stability and contributes to healthy operating surpluses. Favorable enrollment trends coupled with prudent financial management and financial support from PFC partially offset Fitch's concerns related to KIPP's high reliance on state per pupil funding for operations and limited balance sheet liquidity.
SIZEABLE FINANCIAL LEVERAGE: Capital investment in new facilities to accommodate enrollment growth has necessitated periodic debt issuances in recent years; consequently, KIPP currently operates with significant financial leverage. Fitch expects KIPP to continue its track-record of generating consistently healthy operating performance sufficient to repay its debt obligations which is an important mitigating factor. KIPP's long-term strategy may include further debt-financed capital investments; however, there are no concrete plans to do so at present time.
STANDARD SECTOR CONCERNS: A modest 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 negatively impact the rating.
SIGNIFICANT CHANGES IN CHARTER LAWS: The state of
The Knowledge is Power Program (KIPP) is a non-profit entity founded in
Historically, KIPP held two charters authorized by the
SB 2 IS NOT EXPECTED TO ADVERSELY IMPACT KIPP
The state of
Fitch's view on SB 2 are mixed. The state's greater acceptance of charter schools as a viable alternative to traditional public education coupled with greater transparency in the charter renewal process are viewed favorably. However, Fitch believes that other measures included in the legislation, for instance a mandatory charter expiration for academically and/or financially underperforming schools (which does not permit an appeals process), present some new risk. Importantly, Fitch believes KIPP's nearly 20 year operating history reflects a clear competency in managing through varied regulatory landscapes and does not expect SB 2 to adversely impact operations.
MARKET-LEADING POSITION SUPPORTS OPERATIONS
KIPP's strong reputation in the charter school landscape and demonstrated track-record of producing favorable academic outcomes supports consistently solid student demand. In academic year 2012-13, all schools under KIPP's charter achieved the new "met standard" rating (temporary pass-fail system that replaced the exemplary-to-unacceptable scale) and a number of schools achieved a mark of distinction in at least one area of evaluation. More recently, two of
The size of KIPP's enrollment base, which is the largest of all Fitch-rated charter schools, provides some financial flexibility, as the loss of a few students does not produce a material adverse financial effect that cannot be managed from a budgetary perspective. However, state funding reductions in per pupil aid, the organization's primary revenue stream, did pressure operations in the 2012-13 biennium (fiscal years 2012 and 2013). In fiscal 2013, KIPP registered a negative operating margin of -1.6% before consideration of debt service support from PFC pursuant to a 15-year agreement for the series 2009 bonds. KIPP's unrestricted operating revenues adjusted for the
A track-record of relatively steady GAAP-based operating performance somewhat mitigates KIPP's limited financial cushion. Available funds, defined by Fitch as cash and investments not permanently restricted, totaled
SIGNIFICANT FINANCIAL LEVERAGE
KIPP operates with significant financial leverage similar to many other charter schools. KIPP's pro-forma maximum annual debt service (MADS) of around
Fitch views the aforementioned ratios as speculative-grade attributes highlighting the importance of KIPP's ability to sustain healthy operating performance to repay its debt obligations. KIPP's long-term strategy may include further investment in capital assets accompanied by additional debt; however, there are no concrete plans to do so at present time.
Additional information is available at 'www.fitchratings.com'
--'Charter School Rating Criteria' (
--'Fitch Downgrades KIPP, Inc. (
Charter School Rating Criteria
Source: Fitch Ratings
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