Thursday, December 8, 2016

Moody's Finds Overall Credit Quality of Charters Ranges from Investment Grade to Speculative, But Expects Sector Growth - Education Law Prof Blog

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Moody's Finds Overall Credit Quality of Charters Ranges from Investment Grade to Speculative, But Expects Sector Growth

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For those who missed it, Moody's released a financial risk assessment of charter schools this fall.  The four passages jumped out at me:
  • The median rating of Moody’s-rated charter schools is Baa3, but the median credit quality of the broader charter school universe is decidedly lower.
  • [C]harter schools across the nation face unique credit challenges. Those challenges have translated into an above average incidence of defaults relative to other tax-exempt credits. The overall credit quality of this sector ranges from low investment-grade into low speculative-grade categories.
  • [W]e expect that the appetite for the education alternatives that this sector offers will continue to expand. Over time, we also expect that charter school credit quality will likely improve, with strengthening in several key areas including: academic performance reporting; the stability and predictability of per-pupil funding for operational and capital needs; available liquidity and reserve levels; transparent and timely disclosure; and leadership and management quality.
Moody's defines a Baa rating as " medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics."  The additional modifier of 3 "indicates a ranking in the lower end of that generic rating category."  The next step down from that would be a Ba rating which is defined as "speculative and are subject to substantial credit risk."
Read the full report here
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