Standard & Poor's Ratings Services said it has lowered its long-term rating on Michigan Public Educational Facilities Authority's series 2010 limited-obligation revenue bonds, issued for New Branches Charter Academy, to BB-minus from BB-plus.
The outlook is negative.
"The downgrade reflect our view of school's weakening operations, insufficient debt service coverage, and extremely limited cash position," said Standard & Poor's credit analyst Laura Kuffler-Macdonald. Per management, in December 2013, the school hired a new principal. This changed caused one-time financial expenses in fiscal 2014.
Per the unaudited report, fiscal 2014 ended with an operating deficit of $342,000 resulting in insufficient annual DSC of 0.7x, according to S&P calculations. However, school officials report New Branches still complies with its 2010 bond covenants.
In addition, the school has experienced a flat demand profile, with total enrollment in fall 2014 at 370. "Given the school's lack of waitlist, we expect enrollment growth, and resulting financial improvement, will take time," Kuffler-Macdonald added.
Initially chartered in 1994, New Branches is in Grand Rapids, Mich., and serves 370 students in kindergarten through eighth grade. In 2014, the school changed its name from New Branches School to New Branches Charter Academy.
