WASHINGTON — Bonds issued for a District of Columbia charter school in 2007 have been downgraded to B-minus from B-plus by Standard & Poor's because of pending litigation, the rating agency said Friday.
S&P gives the tax-exempt revenue bonds, which were issued by the District of Columbia for the Community Academy Public Charter School, a "developing" outlook due to the uncertainty of the lawsuit's outcome.
In June, the D.C. Attorney General filed a civil complaint in D.C. Superior Court against the school's founder, Kent Amos, and a for-profit management company Amos created to capture and disburse the school's operating profits. An amended complaint was filed in July that adds the school as another defendant. The defendants are fighting the charges and the suit is ongoing.
The amended complaint alleges that the school's net operating revenue has been and is being improperly distributed to the management company, and that the school's board of trustees failed to stop improper payments even though it was aware of them.
The school, whose full name is the Dorothy I. Height Community Academy Public Charter School, has multiple campuses and primarily serves students in pre-kindergarten through fifth grade. It has had a charter since 1998, and the charter was renewed in 2013, according to the complaint.
"The downgrade reflects the potential for revocation of the school's charter by the school's authorizer, the D.C. Public Charter School Board, should the school be found to have violated applicable law or engaged in a pattern of fiscal management," S&P credit analyst Sharon Gigante said in a news release.
In September 2013, S&P downgraded the school's 2007 bonds to B-plus from BBB-minus for reasons including weakened operating performance in fiscal 2013, a low amount of unrestricted cash compared to outstanding debt, slim debt service coverage and declining enrollment. The rating agency said on Friday that the school had positive operating performance on an unaudited basis in fiscal 2014 and improved debt service coverage and liquidity.
The rating agency said it would downgrade the bonds further if the school is found to have broken the law or have engaged in a pattern of fiscal mismanagement and the charter school board proceeds with revoking the school's charter. S&P also said it would downgrade the bonds if "the school fails to achieve break even to positive operating performance in 2015, liquidity worsens, enrollment projections are not met, or academic performance deteriorates further from current levels."
If the school is found not to have violated law or engaged in fiscal mismanagement and the litigation is resolved in a way that is positive or neutral to the school, then S&P may upgrade the bonds. The rating agency could raise the rating further if the school continues to show strong operating performance for at least three years, improved academic performance, strong enrollment and a "good waitlist."
