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Public Finance Authority -- Moody's assigns initial Ba2 to Uwharrie Charter Academy, NC's revenue bonds; outlook stable

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Rating Action: Moody's assigns initial Ba2 to Uwharrie Charter Academy, NC's revenue bonds; outlook stableGlobal Credit Research - 30 Mar 2022New York, March 30, 2022 -- Moody's Investors Service has assigned an initial Ba2 rating to Uwharrie Charter Academy, NC's Education Revenue Bonds (Uwharrie Charter Academy Project) Series 2022A and Taxable Education Revenue Bonds (Uwharrie Charter Academy Project) Series 2022B. The Series 2022A bonds have an expected par value of $43.1 million. The Series 2022B bonds have an expected par value of $265,000. The outlook is stable.RATINGS RATIONALEThe initial Ba2 rating reflects the school's satisfactory competitive profile and enrollment as evidenced by steady year to year demand and consistent retention of students and faculty. The school has produced solid overall academic performance when compared to peers though academic scores lag the state average. Governance is a key driver of the initial rating and incorporates the school's conservative budgeting practices and solid management team. The rating also incorporates the higher leverage and fixed costs resulting from existing debt obligations and the new debt issuance, though this is expected to remain fairly manageable given limited additional debt plans and a generally level debt service schedule.The rating also reflects the moderate liquidity position and adequate debt service coverage. The rating captures the limited charter renewal history as the school is currently undergoing the first renewal request and preliminary indicators suggest sound prospects for renewal. The rating further incorporates adequate legal covenants and the current financial projections that reflect continued maintenance of adequate debt service coverage and projected improvement in liquidity. The pension liability associated with participation in the statewide pension plan is expected to remain manageable.RATING OUTLOOKThe stable outlook reflects our expectation that the school will continue to exhibit satisfactory coverage ratios as well as modestly improve reserves and liquidity levels given ongoing growth, a relatively competitive profile that has resulted in a solid waitlist, and projected stable operations going forward. The outlook also incorporates our expectation of timely completion of the financed project (39 classroom building, a trade education center, and a central administration office) on time and within budget.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material and sustained growth in debt service coverage and liquidity- Growth in enrollment that meets projected targets with a strong waitlist- Moderation of debt relative to liquidity and operating revenueFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Failure to make progress toward total enrollment goals of 2,150 students by school year 2023 -2024 and 2,390 students by school year 2024-2025- Weakening of liquidity and/or debt service coverage below debt covenants- Poor academic performance that jeopardizes the school's ability to renew charter and/ or a weakening of the general competitive profileLEGAL SECURITYThe Series 2022 Bonds are special, limited obligations of the Public Finance Authority, payable solely from revenues derived from a loan agreement with Uwharrie Green School, Inc. Under the loan agreement, the academy has pledged to make payments derived from Uwharrie Charter Academy's principal source of revenue which is state funding derived from its charter school operations. The school has also executed a deed of trust and leasehold mortgage covering its real estate (the facility site, including the middle school facility, expansion facility, and the former government loan facility and athletic facility) as a source of payment for the debt. Additionally, a debt service reserve fund is to be cash funded at maximum annual debt service of the 2022 bonds.USE OF PROCEEDSProceeds of the Series 2022 bonds will finance and refinance the costs of constructing and equipping various school facilities, including a 39 classroom building, a trade education center, and a central administration office. The Series 2022 bonds will also refinance the academy's outstanding 2016 USDA loan that was originally issued to construct educational facilities.PROFILEThe Public Finance Authority, Wisconsin was established by local governments, primarily for local governments, for the public purpose of providing local governments a means to efficiently and reliably finance projects that benefit local governments, nonprofit organizations and other eligible private borrowers in Wisconsin and throughout the country.Uwharrie Charter Academy started operations in the 2013-14 school year and served approximately 181 students in 9th and 10th grades. The school currently serves about 1,800 students in grades K-12. The school curriculum focuses on STEM with A for Arts through hands on, project based learning within a small learning community with a low teacher/student ratio. The school's current charter with North Carolina Board of Education (SBE) became effective July 1, 2013 and will expire on June 30, 2023, if not renewed. The school has started the process of renewing the charter with SBE in November 2021 and expects to receive approval in early 2023. The school is requesting a five year renewal.METHODOLOGYThe 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 DISCLOSURESFor 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. 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