Standard & Poor's Ratings Services said it lowered its long-term rating six notches to CC from B on Boynton Beach, Fla.'s series 2012A tax-exempt and 2012B taxable revenue bonds, issued for and supported by the Charter School of Boynton Beach.
The outlook is negative.
"The downgrade and negative outlook reflect our view that given the revocation of the charter and closure of the school, there is a virtual certainty of default within the next 24 months," said Standard & Poor's credit analyst Carolyn McLean.
The charter authorizer, the School District of Palm Beach, voted unanimously to revoke the school's charter on July 30, 2014. The charter revocation is based on Florida State statute that requires the sponsor to terminate a school's charter if the school receives a grade of F for two consecutive years and has been in operation for more than five years.
The Charter School of Boynton Beach had a score of F for the 2012-2013 and 2013-2014 school years. Although the school is appealing the F score for the most recent school year, the authorizer states that the score is low enough that it is unlikely to be adjusted to D by the state. If the academic ranking score is not adjusted, state statute does not provide for further appeal of the charter revocation.
The bonds will likely default within the next 24 months given that the charter school no longer has access to operating revenue once the charter is revoked, according to S&P. The authorizer states that the school does not plan to open for the 2014-2015 school year and that students will return to their local district schools or attend other charter schools.
Bondholders benefit from a fully funded debt service reserve fund that could cover additional debt service payments. The expectation is that the debt service payment due on June 1, 2014, was made with operating funds, and the following year's debt service payments could be covered by the debt service reserve after which the debt service reserve fund would be exhausted.
