Bangkok--7 Feb--Standard & Poor's
Standard & Poor's Ratings Services lowered its long-term rating to 'CCC' from 'BB' on Colorado Housing & Financing Authority's series 2007 bonds revenue bonds issued for Evergreen Country Day School (ECDS).
The rating reflects Standard & Poor's understanding that debt service on the school's series 2007 bonds is vulnerable to nonpayment and is dependent on favorable business, financial, and economic conditions. The school remains in default of its debt service coverage covenant and the bond trustee and issuing authority have the right to declare a default, which could include acceleration of the bonds, resulting in a working capital deficit.
The rating reflects Standard & Poor's understanding that management continues to make debt service payments in a timely manner, have not accessed debt service reserves, and have unrestricted endowment funds that support debt payments through 2013.
The rating also reflects Standard & Poor's assessment of a debt service covenant that is in default as of fiscal 2010 with a debt service ratio that is negative; limited financial resources to support debt service, which currently is interest-only until 2013; continued negotiations with bondholders, which management indicates may result in an agreement at below par workout of debt obligations; very weak operations on a full accrual basis; continued softening of financial resources levels; and an extremely high debt burden.
Credit factors that Standard & Poor's believes support the rating include preliminary indications from management that it has made progress on reaching a resolution favorable to ECDS and that fall 2011 enrollment continues to grow and operations for fiscal 2011 should be self-sustaining on a cash basis not including debt service. Also supporting the rating is Standard & Poor's understanding that there has been growth in donor support in 2011 with fundraising surpassing goals and the previous year's funds.
"The negative outlook reflects our assessment of the school's ability to continue meeting its debt service payments and avoid an event of default over the next year," said Standard & Poor's credit analyst Blake Cullimore.
A negative rating action would reflect the increased vulnerability of nonpayment or nonpayment resulting in a pending or actual default on a payment on the bonds. A positive rating action over the next year, while unlikely in Standard & Poor's opinion, would reflect the school's ability to continue to meet current obligations, have no covenant violations, and have the long-term financial strength to meet its debt service obligations.
The school used the $12.95 million debt to build a new building for the school in 2008 and help the school expand enrollment. However, the slowing economy and the projections on which the school built the initial financial model have not materialized as planned. While management has reorganized and developed more reasonable enrollment, cost, and fundraising goals and achieved them, financially the school remains stressed due to their debt service obligations, on which they currently only pay interest. In addition, sinking fund payments will begin in June of 2013.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Private Elementary And Secondary Schools, June 13, 2007
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095, Ana
[email protected]
Analyst Contacts:
Blake Cullimore, Boston (1) 617-530-8312
Nick Waugh, Boston (1) 617-530-8342