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Rating Action:

Moody's assigns a Baa3 issuer rating to Golden View Classical Academy, CO; outlook is stable

22 Oct 2020

New York, October 22, 2020 -- Moody's Investors Service has assigned a Baa3 issuer rating and stable outlook to Golden View Classical Academy, CO.

RATINGS RATIONALE

The Baa3 issuer rating reflects the satisfactory financial performance and liquidity of this K-12 school. Fiscal 2020 net revenues are sufficient to cover maximum annual debt service (MADS), exclusive of a bullet maturity of $10.1 million in fiscal 2030, off of existing enrollment at close to 2x. Debt service coverage is projected to remain above 1.5x, inclusive of conservative assumptions for diminished state aid levels as a result of the coronavirus pandemic. The rating takes into consideration the market position of the school, with academic performance at or above competing district schools. Grades K-8 are fully enrolled with a strong wait list. Social considerations are a primary credit driver for this rating as school age population changes are characterized as "demographic and societal trends" under our ESG framework.

The rating is also based upon favorable management practices, with adopted policies, targeted cash reserve levels and a board committee structure that helps to train and develop future board members. Governance is also a primary credit driver for this rating action as "financial strategy & risk management" and "management credibility & track record" are key considerations within our ESG framework.

While not atypical for single site charter schools, the school's relatively high debt leverage is factored into the rating. The school's outstanding $11.8 million in direct placement loans benefit from Colorado's intercept mechanism, under which per pupil revenues are paid directly to the trustee for debt service payments by the state treasurer. The rating also incorporates the risk associated with a near term bullet payment of $10.1 million in 2030. Future reviews will consider the school's ability to plan for and provide for this payment, most likely through a debt service restructuring prior to this maturity. A future refinancing will be reliant on the continued strength of the school's operating and financial performance.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. Despite cuts to state aid, we do not see any material immediate credit risks for Golden View Classical Academy (GVCA). However, the situation surrounding coronavirus is rapidly evolving and the longer-term impact will depend on both the severity and duration of the crisis.

RATING OUTLOOK

The stable outlook is based upon our expectation that the financial performance of the school will remain satisfactory with favorable liquidity levels that will help the school accommodate slowed state aid growth and the potential diminishment in mill levy revenues beginning in fiscal 2029. The outlook also incorporates our expectation that the school will remain essentially fully enrolled in grades K-8, with the potential for modest growth in the high school grades despite slowed growth in the area's school aged population.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Enrollment growth leading to full enrollment at all grades with a strong waitlist

- Sustained improvement in liquidity and debt service coverage in excess of projections

- Significant improvement in academic performance

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Enrollment losses

- Weakened financial performance that falls below projections

- Failure to maintain Board target of 120 days cash

- Termination of mill levy revenues beginning in fiscal 2029 that would lead to weakened financial performance

LEGAL SECURITY

The issuer rating represents the equivalent security as the school's outstanding Series 2020A and 2020B bonds issued through a direct purchase by Independent Bank in Texas and secured by lease payments made by GVCA from gross revenues.

All of the charter school revenue bonds are payable from payments received pursuant to a Loan Agreement between the Colorado Educational and Cultural Facilities Authority (CECFA) and the Golden View Classical Academy Building Corporation, a nonprofit corporation organized for the purpose of serving as borrower and owner of the charter school land and property. Under the Loan Agreement, the Corporation will make debt service payments from pledged revenues, which consist of all revenues derived from the charter school facility, most notably lease payments made to the Corporation pursuant to the Lease Agreement with Golden View Classical Academy.

The school will make lease payments from Gross Revenues, defined as all income and revenue of the charter school with the exception of restricted donor gifts or special purpose revenues that are not available for debt service.

Legal provisions are satisfactory, with a debt service coverage requirement of 1.15x and a 75 days' cash requirement. No additional debt greater than $400,000 is allowed without permission of the purchaser, Independent Bank of Texas. Coverage of less than 1.0x constitutes an event of default.

The structure also benefits from the state's intercept mechanism, under which the State Treasurer, on a monthly basis, will pay debt service based upon 1/6 principal and 1/12 interest amounts, directly to the Trustee from first available state aid payments owed to the school. In the event of default, the bonds are additionally secured by a deed of trust on the land and school. While not subject to the intercept mechanism, the school has also agreed to immediately send any capital construction funds received from the state to the trustee for required sinking fund deposits should state per pupil funding be insufficient.

The school has covenanted to provide annual audit and verification of compliance with covenants to the purchaser.

USE OF PROCEEDS

Proceeds from the 2020A and 2020B direct loans were used to purchase the existing building in which the school is located for $8.3 million and to fund $3.5 million of renovations within the building including construction of a gym and classroom space for the arts.

PROFILE

Initially opened in the fall of 2015 with 496 students in grades K-10, the school now serves 695 full-time equivalent students in grades K-12 as of fall 2020. The school is essentially fully enrolled in grades K-8 with two classes per grade of 30 students each. Similar to many charter schools, enrollment falls off somewhat in the high school grades with around 40 students total per class. As the name suggests, the curriculum focuses on classical instruction with an emphasis on character development. Academic performance generally meets or exceeds that of the district, with academic performance of the school's 3rd grade students, who have been at the school since Kindergarten, especially strong. Located in Golden, Colorado, the school was initially chartered by Jefferson County School District R-1 (Aa2 stable) but in April 2018, applied for a transfer to the state's Charter School Institute. Its current charter expires June 30, 2023.

METHODOLOGY

The principal methodology used in this rating was US Charter Schools published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1039451. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Helen Cregger
Lead Analyst
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Nicolanne Serrano
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