charter school bonds: history & future trends · 2018. 6. 3. · ©2013 bill & melinda...

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Department of Education Program Directors Meeting

Charter School Bonds: History & Future Trends

Reena BhatiaNoah WepmanSeptember 30, 2013

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•Charter Schools’ Facilities Need and Background

•Charter School Bond Market Overview

•Default Analysis

•Analysis of Outstanding Issues

•Disclosure Findings

•LISC’s New Disclosure Template

Agenda

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Being globally competitive requires a stretch goal for our education system.

July 10, 2013

35%

2012 2025

80%ENSURING AT LEAST

OF ALL STUDENTSGRADUATE FROM

HIGH SCHOOL COLLEGE-READY

BY 2025.

At the Gates Foundation,

this is what we’re working towards�

© 2013 Bill & Melinda Gates Foundation | 4

TeachingTeaching LearningLearning InnovationInnovation

Three core initiatives…

High-performing charters represent one of the most effective methods

to develop, test, improve and accelerate new ideas.

Those networks have the ability to influence school districts and bring

breakthrough practices to scale.

High-performing charters represent one of the most effective methods

to develop, test, improve and accelerate new ideas.

Those networks have the ability to influence school districts and bring

breakthrough practices to scale.

This is how we believe we’ll get to 80% college ready by 2025:

© 2013 Bill & Melinda Gates Foundation |

1. Waiting lists for charter schools now exceed 1 million students.

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3. The percentage of charter schools that have accessed the bond market

is less than 10%.

2. More than 50% of charter schools are located in facilities that, at their

current rate of growth, will be too small

within five years. 2018.

+ 5 Years�

2013.

There’s enormous market demand.


To date, the default rate on rated issues is only 1.3%. The vast majority of the defaults were linked directly to subpar academics.

Center for Research on Educational Outcomes, Stanford University

There’s a high correlation between academic success and financial performance.


The importance of credit enhancements to student achievement

Source: Charter School Facilities Initiative, Initial Findings

From Ten States, April 2013

- Incent collaboration w/school districts to reduce facility expenditures

- Direct enhancements to the schools and networks that have great results

- Huge need for affordable 5-7 year money

- Need for greater transparency into the market so that all actors better understand risk


The Foundation’s partnership with LISC:

• Foundation wanted to stimulate bond sector and bring greater transparency and shared knowledge of the market.

• Partnered w/LISC & others to create a credit enhancement for KIPP Houston so it could raise $67M in order to expand.

• Commissioned two reports:

• Poor state of the bond market in 2008.

Limited information & perceived risk has impeded investments.

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Market Overview

Issuance

Annual Issuance(Par Amount in $ Millions)

$11 $80

$208

$305

$226$274

$327

$396

$1,037

$951

$800

$1,068

$540

$572

$556

$361

19

2631 33

30

42 43

59

79

107

34

4

44

26

74

51

$0

$200

$400

$600

$800

$1,000

$1,200

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Par

Am

ou

nt

0

20

40

60

80

100

120

Nu

mb

er

of

Issu

es

Par Amount Number of Issues

Charter school tax-exempt bond issuance now totals approximately $7.7 billion for

700 bond issues, including $1.27 billion for 117 issues since study publication.

Repayment Performance

Since publication, there have been five additional defaults, bringing the total number

of defaults to 27, including 5 on rated issues and 22 on unrated issues.

Rating Category1

Defaults Total Rate Defaults Total Rate

Investment Grade Rating 1 312 0.3% $18.9 $4,319.7 0.4%

Non-Investment Grade Rating2

4 75 5.3% $26.2 $1,080.8 2.4%

Rated Issues 5 387 1.3% $45.2 $5,400.5 0.8%

Unrated Issues 22 314 7.0% $172.8 $2,308.5 7.5%

Total3

27 700 3.9% $217.9 $7,709.0 2.8%

Number of Issues Par in Millions

1 Rating at issuance.

2 One school defaulted on two issues.

3 Two issues had both a rated and an unrated series.

Charter School Bond Default Rates

Analysis of Outstanding IssuesFinancial Metrics

2011 Financial Statement Disclosure

Of the 448 outstanding issues totaling $5.4 billion, we were able to access FY11 data

for 354 issues totaling $4.3 billion. These issues were undertaken by 298 schools.

Suff icient Information

(354)79%

Insuf f icient or Non-Current Information

(18)4%

Other(Pool/New)

(13)3%

LOC/3rd Party

(24)5%

Post Issuance(39)9%

2011 Debt Service Coverage

DSCR – All Debt($ in Millions)

The vast majority of outstanding debt had healthy debt service coverage in

FY 2011. The All Debt median stood at 1.41x, with a MADS median of 1.37x.

$385

$868

$791

$536

$566

$580

$456

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

<1.00x

1.00x - 1.19x

1.20x -1.39x

1.40x - 1.59x

1.60x - 1.99x

2.00x - 2.99x

3.00x+

All Rated Unrated

2011 Debt Burden

68% of the par amount outstanding had a debt burden below the 15% benchmark,

including 39% that had a burden of less than 10%. The median was 12.7%.

Debt Burden – All Debt($ in Millions)

$374

$971

$923

$268

$1,336

$313

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

20%+

15% - 19.9%

12% - 14.9%

10% - 11.9%

5% - 9.9%

Less than 5%

All Rated Unrated

Repayment Performance

Changes in Default Profile

The five additional defaults have not affected the sector’s repayment performance in

the aggregate, but have affected performance within rating categories.

Report, As of 5/31/2012 ($ in Millions)

Rating Category Defaults Total Rate Defaults Total Rate


Non-Investment Grade Rating 1 44 2.3% $2.6 $684.9 0.4%

Rated Issues 1 301 0.3% $2.6 $4,382.8 0.1%

Unrated Issues 21 284 7.4% $170.1 $2,058.6 8.3%

Total 22 583 3.8% $172.6 $6,441.4 2.7%


Rating Category Defaults Total Rate Defaults Total Rate


Non-Investment Grade Rating 4 75 5.3% $26.2 $1,080.8 2.4%

Rated Issues 5 387 1.3% $45.2 $5,400.5 0.8%

Unrated Issues 22 314 7.0% $172.8 $2,308.5 7.5%

Total 27 700 3.9% $217.9 $7,709.0 2.8%


Update, As of 6/30/2013 ($ in Millions)

Credit Characteristic Comparison

The schools that defaulted tended to be younger, smaller schools that

borrowed at a relatively high cost of funds.

Median Average

Variable Defaulted Outstanding Defaulted Outstanding

Par Millions $6.868 $8.465 $7.846 $11.988

All-In Cost 7.8% 6.9% 7.9% 7.0%

School Age (Years) 4.2 6.3 4.0 6.7

Enrollment 247 554 313 907

Waitlist (%) 28% 37% 54% 68%

DSCR Year 1 1.55 1.51 1.69 1.84

DSCR Latest Year 1.53 1.53 1.82 1.69

Debt Burden Year 1 14.2% 12.5% 13.8% 12.5%Debt Burden Latest Year 14.2% 13.4% 13.7% 13.5%

Credit Characteristics at Issuance

Defaulted & Outstanding Bond Issues

Disclosure Comparison

Item Defaulted Outstanding

Financial Statements 86% 95%

School Age 100% 98%Enrollment 100% 100%

Waitlist Information 32% 59%Pro Formas 77% 82%Academic Data 55% 84%

Average Academic Metric 2.36 3.53

Waitlist information and academic indicators for defaulted and performing

schools had greater variance than traditional financial metrics.

Disclosure at Issuance

Defaulted & Outstanding Bond Issues

Disclosure Findings

Single Charter Credit(379)85%

Multiple Charter Credit(14)3%

LOC(16)4%

Other 3rd Party Credit

(7)1% Not

Available(32)7%

448 Outstanding Issues

Disclosure Universe – 393 Issues

Disclosure Universe

373 384 393

233

322 329

20 9

160

71 64

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Financial Statements

SchoolAge

Enrollment Waitlist ProFormas

AcademicData

Yes No

Disclosure Information

Disclosure Item Summary

We identified six primary disclosure items and determined whether they were

provided in the 393 offering documents.

Academic Disclosure

We analyzed the offering documents for the outstanding issues and tallied

the type of academic data provided for each.

Raw Academic Data

64

60

215

186

223

8

125

21

128

6

0 50 100 150 200 250

No Academic Information

Other Schools Comparable

State Comparable

District Comparable

Other Tests/AYP Results

Single-Year Aggregate State

Single-Year Disaggregate State

Multi-Year Aggregage State

Multi-Year Disaggregate State

Authorizer Report

Academic Disclosure

We weighted the academic components based on their usefulness in assessing

school quality and calculated a metric for each offering based on those weights.

Academic Metric Distribution

Academic Data Weight

Authorizer Report 3

Multi-Year Disaggregate State 3

Multi-Year Aggregage State 2

Single-Year Disaggregate State 2

Single-Year Aggregate State 1

Other Tests/AYP Results 1

District Comparable 1

State Comparable 1

Other Schools Comparable 1

8-10

2% 0

16%

5-7

35% 1

12%

2-4

35%

Disclosure TemplateBest Practices in Credit Underwriting

� Academic performance � Standardized test scores compared to school district, state and peer

schools either in absolute terms and/or improvement over time

� Corporate governance and management � Board governance, management and third-party management

organizations

� Enrollment

� Waitlist information

� Facility information� Description including appraisal and environmental information

Disclosure Template

The Bond Research made it clear that the charter school

bond community needed more transparency.

LISC created a template for underwriters to use focusing on the following criteria.

Disclosure Template

� Financial information � Audited and interim financials

� Budget

� Per pupil funding levels

� Philanthropy

� Detailed debt service schedule

� Legal information � State’s charter school statute and education funding process

� Authorizer renewal requirements

� Charter document

� State intercept program, if available

� Litigation

� Multi-year proforma projections

Disclosure Template

� Authorizer relationship

� School operations� School affiliates

� School age

� Charter expiration date

� Curriculum

� Demographics

� Attendance

� Competition/Market study

� Student and teacher retention

� Faculty

� Grade configuration changes

� Transportation arrangements

� Insurance

� Parental involvement efforts

Contact Information

Noah WepmanPortfolio Manager

Bill and Melinda Gates Foundation

[email protected]

Reena BhatiaVice President

Local Initiatives Support Corp.

[email protected]

charter school bonds: history & future trends · 2018. 6. 3. · ©2013 bill & melinda...

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