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KIPP Charlotte, Inc., NC -- Moody's assigns initial Ba1 to KIPP Charlotte, Inc.'s (NC) Revenue Bonds Series 2020 A&B; outlook stable

Rating Action: Moody's assigns initial Ba1 to KIPP Charlotte, Inc.'s (NC) Revenue Bonds Series 2020 A&B; outlook stable

Global Credit Research - 18 Aug 2020

New York, August 18, 2020 -- Moody's Investors Service has assigned an initial Ba1 rating and stable outlook to KIPP Charlotte, Inc.'s $12.1 million Educational Facilities Revenue Bonds (KIPP Charlotte, Inc.), Series 2020A and $1.8 million Taxable Educational Facilities Revenue Bonds (KIPP Charlotte, Inc.), Series 2020B, issued through the Public Finance Authority.

RATINGS RATIONALE

The Ba1 rating reflects KIPP Charlotte's narrow operating history with satisfactory debt service coverage and below-average, but improving, liquidity position bolstered by a recently received Paycheck Protection Program loan. The rating also incorporates the district's competitive profile, which benefits from strong integration with the community and a good relationship with the charter authorizer, as evidenced by long-term charters. These strengths are somewhat offset by the school's below-average academic performance relative to neighboring schools. The rating further incorporates adequate legal covenants and the current financial projections that reflect improving coverage of debt service and liquidity going forward. Leverage is manageable. Management has a strong history of proactive financial management and the school is in good standing with its authorizer.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. We have incorporated our current understanding of these risks into our credit analysis for KIPP Charlotte, including stress scenarios that considered reductions in state aid funding as a result of the financial impact from coronavirus at the state level. Nevertheless, the situation surrounding coronavirus is rapidly evolving and any longer-term impact on KIPP Charlotte will depend on both the severity and duration of the crisis. If our view of the credit quality of the school changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

The stable outlook reflects our expectation that the school's financial position and operations will remain sound, supporting continued improvement in liquidity and debt service coverage, driven by steady enrollment demand and conservative budgetary management.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Material and sustained growth in debt service coverage and liquidity

- Significant reduction in leverage related to long-term debt

- Sustained improvement in academic outcomes

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Inability to maintain structural balance resulting in declines in debt service coverage and liquidity

- Material increase in debt burden

- Further weakening of academic outcomes

- Enrollment declines

LEGAL SECURITY

The bonds are secured by a pledge of the Trust Estate under the Indenture, which predominantly includes Loan Payments to be made by the Borrower (KIPP Charlotte, Inc.) to the Public Finance Authority under a Loan Agreement. The bond will be further secured by a mortgage interest on all of the school's facilities and a pledge of certain funds held under the indenture.

USE OF PROCEEDS

Bond proceeds will be used to acquire the Change Academy elementary school campus, restructure outstanding debt, and provide working capital to reimburse for the school's withdrawal from the Teachers' and State Employees' Retirement System (TSERS).

PROFILE

KIPP Charlotte is a public charter school located in the City of Charlotte, NC (Aaa stable) authorized by the State Board of Education. Founded in 2007, the school operates two campuses serving grades K-8 and had enrollment of 844 students for the 2019-20 school year.

METHODOLOGY

The principal methodology used in these ratings was US Charter Schools published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1039451. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Evan Hess Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Nicolanne Serrano Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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