Mitigating Risk in Charter School Bonds
Date Published: 10/12/2011
Author: Yaffa Rattner, John Pellicci, Mark Richman, Jon Faison - Piper Jaffray
LISC's Charter School Bond Research has contributed to expanding the capital markets for charter school bonds as highlighted in the following studies by investment banks.
Excerpt:
Charter school debt issuance can be an attractive investment vehicle when structured and evaluated properly. Given the growth of capital borrowings by charter schools to finance their facilities, it is important to consider which credit factors can cause performance significantly below underwriting expectations. This is particularly important, as 5% of charter schools that have issued debt have reported impairments including a default rate of 1.7%. Therefore, investors need to focus on the charter school management teams and bond security provisions to maximize long‐term investor security.
Charter schools continue to gain recognition as a sound alternative to the traditional public school with the corresponding need to fund capital assets resulting in $5 billion in charter school debt issued since 1999. In fact, one fifth of the debt outstanding in this sector was issued in 2010 and continued growth is projected. Our expectation of additional debt reflects growing enrollment (an additional 3% enrollment increase is anticipated for fiscal 2011‐2012), an additional 7% of new charter facilities last year, and almost two thirds of charter schools rent and do not own their facilities. Continued[+]...
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Topic: --Educational Facilities
Type: Topical report