For their October 2019 bond issue, IDEA Public Schools earned an “A-” underlying bond rating from Standard & Poor’s. This represents the first time a charter school has earned an underlying rating in the “A” category on its own, without any form of enhancement or support. This is truly a significant accomplishment, and an important milestone for the charter school industry! It also means all $900+ million (yes, you read that correctly) of outstanding debt carries the same “A-” underlying rating, whether or not a particular series is guaranteed by the PSF.
The 2019 issue, which totaled over $214 million, all new money, was also guaranteed by the Texas PSF, earning a “AAA” rating on top of the underlying “A-“. For 30-year debt, IDEA’s TIC was 3.01%. Yowza!
For years, rating agencies have theoretically held that charter schools could break out of the “BBB” or “Baa” category, but no agency had ever gone as far as to actually assign such a rating. No longer. In granting the upgrade from “BBB+”, S&P focused on the very strong enterprise profile of IDEA’s operations in Texas. They noted IDEA’s proven track record to successfully manage expansion while maintaining very strong academic and financial performance. They also highlighted IDEA’s sophisticated management team with an extensive “bench”, historically positive operation margins, and consistently favorable test results remaining well above state averages.
This rating was at least a year overdue. Ratings are relative measures of risk, and with other ratings in the charter school industry in the high “BBB” category assigned last year, there was a false impression that the group of schools in the “BBB+” category were all the same. But, what separates IDEA is the ability to obtain the academic and financial results they do at the the unprecedented scale at which they obtain them. The 2020 budget is based upon over 50,000 students across five regions totaling 91 schools on 45 campuses. And, they plan to keep on trucking into new regions in Texas, as well as expanding into other states. The 2020 operating budget for Texas is in excess of $650 million.
Buck Financial serves as Co-Financial Advisor to IDEA, as does Masterson Advisors LLC. Robert W. Baird & Co. served as senior manager, Hunton Andrews Kurth served as bond counsel, McCall Parkhurst served as underwriter’s counsel, PMSI serves as project manager to IDEA, BB&T Capital Markets served as Co-Manager, and Regions Bank served as Trustee.
Congratulations to the students, families, and staff at IDEA Public Schools on another successful bond issue. And “Well done!” to the staff and leadership of IDEA on showing that the “A” bond rating category does not have to remain a theoretical construct.