Newark Charter School Inc., DE 2020 Revenue Bond Rated 'BBB+'; Outlook Stable

CHICAGO (S&P Global Ratings) March 27, 2020--S&P Global Ratings assigned its 'BBB+' rating to Delaware Economic Development Authority's series 2020 revenue bonds, issued for Newark Charter School Inc. (NCS), Del. At the same time, S&P Global Ratings affirmed its 'BBB+' rating on the authority's 2012 and 2016 revenue bonds, also issued for NCS. The outlook on all ratings is stable.
The series 2020 bonds are on parity with the existing bonds. A first lien on the gross revenues of the school, consisting primarily of per pupil revenues of the state, a security interest in the mortgage of the financed building, and a fully funded debt service reserve and repair and replacement reserve, secures the bonds. The series 2020 bonds will be used to finance the construction, equipping and furnishing of a new middle school campus, a commons that will connect the primary and intermediate buildings, renovations to the school's athletic facilities, as well as fund a debt service reserve fund and pay the costs of issuance. Construction is planned to begin on the middle school building (on a property the school already owns) starting summer 2020, with a planned opening in fall 2022 As of March 19, 2020 the school's charter capacity was revised to 3,155 from its previous cap of 2,470. As a result, the school anticipates modest growth of about 1% for the next two years, before enrollment jumps by about 20% in fall 2022 across all grades. As of June 30, 2019, the school had $28.4 million in total debt outstanding; post-issuance, pro forma debt will be $48.7 million.
"While there is uncertainty regarding the impacts of the COVID-19 pandemic at this time, we recognize NCS has a history of prudent strategic planning, conservative financial management, healthy liquidity, and robust demand which supports enrollment growth expectations," said S&P Global Ratings credit analyst Natalie Fakelmann. As the state has issued a "stay at home" order until May 15, 2020, NCS will begin distance instruction for its students starting on March 30th. NCS, like all Delaware charter schools, has already received its full per-pupil funding for the current fiscal year, which provides near-term operating stability. In addition, the state's proposed fiscal 2021 budget calls for a 2% increase in per-pupil funding supporting expectations of operational stability, with no recent update to these expectations. If there are any changes in state funding, enrollment levels, or additional expenses related to the pandemic, we could revisit our view of the rating at such time.
The stable outlook reflects our expectation that over the two-year outlook period, NCS' enterprise profile will continue to show steady demand as well as excellent academics, and solid charter standing. We also anticipate the school's financial metrics--such as days' cash on hand, MADS coverage, and debt burden--will remain sufficient for the rating.
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