Our review will consider expected results for fiscal 2020, the fiscal 2021 budget, enrollment projections for fiscal 2021 and beyond, plans for educating students during the pandemic, plans for managing through state aid deferrals, and updates regarding vacant and recently filled leadership positions. We expect to conclude our review within the next two months.
LEGAL SECURITY
The Series 2017A bonds are secured under a loan agreement between the California School Finance Authority and HTH Learning as the borrower. Pursuant to the Indenture, loan repayments are secured by payments from High Tech High (HTH) as the lessee for which revenues from operations of two schools, High Tech High Media Arts and High Tech High Chula Vista (the "Schools"), have been pledged.
Central to the security structure for the bonds is a state intercept mechanism under which HTH as the lessee will direct California's State Controller to intercept on a monthly basis, from state aid that would otherwise be paid to the Schools, base rental payments equal to debt service and related fees on the bonds and pay such intercepted amount to the trustee prior to releasing the remainder to HTH as the CMO. Should state aid payments be insufficient for the required set aside, HTH Learning, as the landlord under the lease agreements, is authorized to request a payment of extraordinary monthly rent to HTH, as the tenant, which would then be due within three business days to make up for any shortfall. Any rent payments not received within 10 calendar days accrue a late charge equal to 5% of the delinquent amount.
Although it is the intention under the leases to make up for any shortfall from the other school, HTH could voluntarily make up shortfalls in the payment of extraordinary rental payments from any of its schools. While this provides HTH with additional flexibility, it exposes the security for the Series 2017 bonds to potential weakening on the part of other schools within HTH's CMO structure, even schools that have not yet been identified or opened.
HTH pays a fixed percentage of unrestricted public revenues for management expenses, with high schools paying 8%, middle schools 6% and elementary schools 5%. Payment of management fees is subordinate to debt service payments, although late payments accrue with interest. The availability of a cash funded reserve, equal to the lesser of the traditional three-pronged test, provides additional security against potential timing delays from payment of extraordinary monthly rent. Lease covenants require 60 days cash between the two schools as well as a combined debt service coverage level of 1.1x. Violation of either of these provisions requires that an independent consultant be hired if requested by most bondholders.
The additional bonds test requires 1.2x both historical and projected coverage of debt service, exclusive of balloon payments. The lease agreement also includes restrictions on refunding transactions, limiting the increase in MADS and indebtedness to no more than 10%, although these requirements do not apply to refinancing of balloon payments. In the event of default, bondholders would be granted a leasehold deed of trust in the long-term lease of the Chula Vista property, which extends until 2057, although the use of this property would be limited in purpose, and no appraisal is available. Under the leases, the schools may also enter into short-term indebtedness of up to $2 million.
PROFILE
High Tech High (HTH) is a charter management organization (CMO) operating 16 charter schools providing K-12 education to around 5,700 students. High Tech High Learning (HTH Learning) is a non-profit public benefit corporation organized for charitable purposes to support the public charter schools operated by HTH. High Tech High Foundation (HTH Foundation) is a non-profit public benefit corporation organized for charitable purposes to support and promote HTH. High Tech High Graduate School of Education (HTH GSE) is a non-profit public benefit corporation organized for charitable purposes.
METHODOLOGY
The principal methodology used in this rating 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.
Heather Guss Lead Analyst Regional PFG Dallas Moody's Investors Service, Inc. Plaza Of The Americas 600 North Pearl St. Suite 2165 Dallas 75201 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Roger Brown Additional Contact Regional PFG Dallas 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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