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Rating Action:

Moody's assigns initial Baa3 to River City Education Management, LLC's (FL) $37.05 million series 2021A and 2021B; the outlook is stable

13 Jan 2021

New York, January 13, 2021 -- Moody's Investors Service has assigned an initial Baa3 rating and stable outlook to $36.5 million tax exempt Educational Facilities Revenue Bonds (River City Science Academy Projects), Series 2021A and $510,000 Educational Facilities Revenue Bonds (River City Science Academy Projects), Taxable Series 2021B of River City Education Management, LLC. The sole member of the LLC is River City Education Services, Inc. (RCSA), for the River City Science Academy Projects. The conduit issuer is Florida Development Finance Corporation. Upon issuance of the Series 2021 A&B Educational Facilities Revenue Bonds, RCSA will have $37.05 million of obligated group debt outstanding.

RATINGS RATIONALE

River City Science Academy's Baa3 rating reflects its satisfactory pro forma debt service coverage, with estimated proforma fiscal 2021 coverage of 1.31x.The rating also incorporates a trend of solid financial performance and liquidity and full enrollment at existing school campuses supported by robust wait lists. Debt service coverage is expected to strengthen as additional enrollment is added, given a material expansion at one school campus, Innovation, and the addition of a new school facility, Intracoastal, in fall 2021. RCSA schools benefit from their designation as a 'High Performing' charter system.

The Baa3 rating considers RCSA's construction risk, which is somewhat mitigated by the ability of the obligated group to meet debt service requirements at current enrollment levels. Additionally, Governance a key consideration of this rating assignment; reflects the complex operations of RCSA and the modest size of the board of directors, as well as key person risk, due to the systems high reliance on its founder and executive director.. Likewise, RCSA is exposed to potential changes in the state funding environment due to the broader economic impact of the coronavirus pandemic, though, favorably, none of the system schools saw enrollment decline in the 2020-21 school year.

RATING OUTLOOK

The stable outlook reflects our expectations of continued stable coverage levels and the maintenance or strengthening of obligated group liquidity, as well as the continued expansion of enrollment levels. Additionally, the outlook assumes an on-time and on-budget construction of funded facilities, as well as a seamless expansion of the obligated group into its new school facility.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Materially improved coverage and cash position

- Lower leverage metrics

- Full, sustained, enrollment of current and future facilities as planned

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Material reduction in state funding on per pupil basis

- Any reduction in liquidity or coverage

- Increased leverage

- Material decline in enrollment that persists over time

- Movement out of 'high performing' school/system category

LEGAL SECURITY

The 2021 bonds are issued by the Florida Development Finance Corporation, the proceeds of which will be loaned to River City Education Management, LLC, per the loan agreement. The sole member of River City Education Management, LLC is River City Education Services, Inc (RCSA) which operates the obligated group schools. The obligated schools include RCSA Elementary, RCSA Innovation, RCSA Mandarin, and RCSA Intracoastal. The obligations of the schools required under the loan agreement are absolute and unconditional. District (School Board) payments to the obligated schools are the primary source of revenue and are the principal and expected source of repayment of the bonds.

The bonds of each series are secured by a gross revenue pledge of RCSA obligated group schools and a first priority lien on facilities of the obligated schools owned by the obligated group. The obligated group will make payments to the trustee on the first calendar day of each month. The trustee will apply these payments to the flow of funds, with excess funds after debt service set asides flowing to the bond or redemption funds.

The bond covenants include debt service coverage requirement for the obligated group of 1.1x net revenues and a liquidity test of 45 days cash on hand to be measured starting June 30, 2021. If the coverage and liquidity covenants are not met, RCSA is required to hire a management consultant to review and make recommendations as to the operation and administration of RCSA. The additional bond test requires the obligated group to have historical coverage and projected coverage ratio of 1.2x. The debt service reserve fund is the lesser of Maximum Annual Debt Service or 125% of average annual debt service or 10% of initial principle, which will be funded from bond proceeds.

USE OF PROCEEDS

Refinance the acquisition of the Elementary facilities and refinance, acquisition, construction, and renovation of the Innovation and Intracoastal facilities. Bond proceeds will also fund a debt service reserve equal to the traditional three-pronged test and capitalized interest.

PROFILE

RCSA, Inc was incorporated in 2006. The Academy currently consists of five schools, including Intracoastal opening in August 2021. The obligated group is a subset of four of the schools, all located within Duval County. The obligated group schools and charter expirations are RCSA Elementary (2030), RCSA Innovation (2023), RCSA Mandarin (2035), and RCSA Intracoastal (2026) which will open in fall of 2021. The schools benefit from the statutory designation of their system as a 'High Performing Charter System'. As of fall 2020, three operating school in the obligated group were fully enrolled with a combined 2,033 students in grades K-8.

METHODOLOGY

The principal methodology used in these ratings 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_1243406.

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.

Frederick Cullimore
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