Old Redford Academy, MI Revenue Bond Outlook Revised To Negative On Short Charter Renewal

SAN FRANCISCO (S&P Global Ratings) March 1, 2019--S&P Global Ratings revised 
its outlook to negative from stable and affirmed its 'BB-' rating on Michigan 
Public Educational Facilities Authority's series 2005A and Michigan Finance 
Authority's series 2010A limited obligation revenue bonds, both issued on 
behalf of Old Redford Academy.

"The negative outlook reflects our view of the risks associated with Old 
Redford's short, one-year charter renewal granted by its authorizer in 2018, 
which we believe leaves the charter susceptible to a greater possibility of 
non-renewal," said S&P Global Ratings credit analyst Robert Tu. "Additionally, 
the academy is experiencing enrollment pressure and increased competition, 
academic underperformance, recent management transitions, and the expectation 
of deficit operations in fiscal 2019, leading to the expectation of below 
1.00x maximum annual debt service coverage by our calculations," Mr. Tu added. 

The rating reflects our view of Old Redford's:
  • Short, one-year charter term granted by its authorizer in June 2018;
  • Increased enrollment pressure and competition, coupled with no waitlist to offset enrollment fluctuations;
  • History of uneven operating performance on a full-accrual basis, with fiscal 2019 expected to end with a slight deficit;
  • Declining MADS coverage, which we believe could fall below 1.00x in fiscal 2019, although management expects to remain in compliance with bond covenants;
  • A limited revenue pledge restricted to the use of per-pupil state aid to no more than 20% of appropriations; and
  • Risk, as with all charter schools, that the school can be closed for nonperformance of its charter or for financial distress before the final maturity of the bonds.
Partly offsetting these weaknesses, in our view, are the academy's:
  • Long-tenured operating history of over 18 years;
  • Acceptable liquidity, with 65 days' cash based on fiscal 2018 financials;
  • Moderating debt burden and no current expansion plans; and
  • Intention to not utilize short-term borrowing in fiscal 2019.
Old Redford Academy is a pre-kindergarten through 12th grade public charter 
school in its 20th year of operations. The school's mission is to provide to 
Detroit residents a strong educational option that would prepare students for 
college or a vocation following graduation. All of the academy's senior 
students are required to be accepted into at least three post-secondary 
institutions. The school also has a five-star pre-kindergarten program, which 
is the highest rating given by the Michigan Department of Education. We 
believe these characteristics help to support the school's longevity in a 
challenging educational environment.
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