TEXT-Fitch rates George School, Pa. revs 'AA-'
Jan 25 - Fitch Ratings has assigned an 'AA-' rating to the following revenue bonds issued by Bucks County Industrial Development Authority on behalf of the George School (GS): --Approximately $28.9 million tax-exempt series 2013A; --Approximately $5.0 million taxable series 2013B. The fixed-rate bonds (the bonds) are expected to price via negotiated sale on or about the week of Feb. 4, 2013. Proceeds of the bonds will be used to fund the construction and equipping of a new athletics facility and several smaller capital projects, and pay associated costs of issuance. In addition, Fitch affirms the 'AA-' rating on $33 million of outstanding revenue bonds. The Rating Outlook is Stable. SECURITY The bonds, which rank on parity with the series 2009 and 2011 bonds, are an unsecured general obligation of the school, payable from all unrestricted revenues. SENSITIVITY/RATING DRIVERS SOLID FINANCIAL CUSHION: GS' financial cushion provides the school with considerable financial flexibility and underpins the 'AA-' rating. TRACK-RECORD OF POSITIVE OPERATIONS: The combination of prudent financial management, healthy enrollment trends, and continued support from the Barbara Dodd Anderson Charitable Lead Annuity Trust has produced year-over-year operating surpluses. Moderately high revenue concentration in student charges is partially offset by the school's favorable enrollment trends and admissions statistics. RELIANCE ON INVESTMENT PERFORMANCE: Management's plan to cover debt service on the bonds assumes revenue growth in future years, supported by additional investment returns associated with growing the school's endowment. While this strategy reflects GS' increasing dependence on investment performance, some comfort is provided by the school's prudent management and oversight of its investment portfolio. AGGRESSIVE DEBT CONFIGURATION AND BURDEN: Fitch continues to view the school's leverage position as a credit concern. Pro-forma maximum annual debt service (MADS) consumed a very high portion of fiscal 2012 unrestricted operating revenues and the school structures its debt with substantial deferment of principal payments. Concern is somewhat mitigated by the school's solid level of unencumbered reserves and lack of additional debt plans. WHAT COULD TRIGGER A RATING ACTION: ADDITIONAL DEBT ISSUANCE: While not anticipated, the issuance of additional revenue bonds would likely pressure the school's current rating. CREDIT PROFILE As a result of the significantly back-loaded debt structure, MADS is expected to increase to $9.5 million (fiscal 2044) compared to the $4.1 million (fiscal 2035) at present. Recognizing the structural impact of this debt configuration, Fitch calculated an alternative debt burden metric with all bonds amortizing evenly; this adjusted pro forma MADS of $5.2 million consumed a very high 19.3% of unrestricted fiscal 2012 operating revenues. Debt repayment on the series 2013 bonds is expected to be absorbed through revenue growth in future years, supported by additional investment returns associated with growing the school's endowment. Fitch notes positively that GS' governing board has demonstrated a clear commitment to growing the school's financial resources, most recently by allocating a $30 million bequest received in fiscal 2011 toward endowment growth. Further, Fitch continues to view favorably the school's active oversight of its investment portfolio, with a subcommittee of the board meeting quarterly to review asset allocation policies, endowment performance, and investment strategies. The Stable Outlook incorporates Fitch's view that management will be able to achieve sufficient revenue growth over time to offset the additional debt carrying charges. GS's very high debt burden is also offset by the school's sizeable level of unencumbered resources. Available funds, defined as cash and investments not permanently restricted, totaled approximately $87.7 million as of July 31, 2012, which covered fiscal 2012 operating expenses and long-term debt by a solid 3.4x and 1.3x, respectively. Stability in financial resources is supported by the generation of consistently positive operating results, including 4.5% in fiscal 2012. The lack of debt plans over the next few years is an additional mitigating factor. George School is an independent, co-educational Quaker boarding and day school serving grades 9 - 12. It was founded in 1893 by the Religious Society of Friends (Quakers) and is located on 240 acres in Newtown, PA. Total headcount has been relatively stable over the past five years, ranging from 520 students in fall 2008 to 545 students in fall 2012. This has been bolstered by generally increased selectivity over the past few years across both day and boarding school students. The matriculation rate has remained solid, with approximately one-half and two-thirds of accepted boarding and day school applicants, respectively, enrolling in fall 2012. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Revenue Supported Rating Criteria'(June 12, 2012); --'Independent School Rating Criteria' (June 18, 2012); --'Fitch Affirms George School (PA) Revs at 'AA-'; Outlook Stable' (Nov. 16, 2012). Applicable Criteria and Related Research: Revenue-Supported Rating Criteria Independent School Rating Criteria