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
The Rating Outlook is Stable.
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
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
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
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.
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
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,
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
Independent School Rating Criteria