Rating Action: Moody's assigns Ba2 UND/Aa3 ENH ratings to Gem Prep: Nampa's (ID) Nonprofit Facilities Revenue Bonds, Series 2022A&B; outlook stableGlobal Credit Research - 19 Jan 2022New York, January 19, 2022 -- Moody's Investors Service has assigned Ba2 underlying and Aa3 enhanced ratings to the Idaho Housing and Finance Association's $8.5 million Nonprofit Facilities Revenue Bonds (Gem Prep: Nampa Project), Series 2022A (Credit Enhancement) and $265,000 Nonprofit Facilities Revenue Bonds (Gem Prep: Nampa Project), Series 2022B (Credit Enhancement) (Federally Taxable). Concurrently, Moody's assigned a stable outlook. Post-sale, Gem Prep: Nampa (ID) will have $8.8 million in facilities revenue bonds outstanding.RATINGS RATIONALEThe Ba2 underlying rating reflects the limited, though stable, operating position of Gem Prep: Nampa. The school's debt service coverage and liquidity are strong relative to the scope of the school's operations, however, operating margins are very narrow and minor enrollment challenges or declines in state aid could impact financial outcomes materially. Enrollment growth is required to meet the school's financial projections with strong annual economic expansion in the City of Nampa (Aa3 stable) and greater Boise metropolitan area likely to drive modest enrollment growth over the next few years. The school's leverage is elevated relative to operations, though the school does not have any further near term issuance plans.Governance considerations are a key driver for this rating action given the school's limited charter renewal and operating history. Gem Prep: Nampa operates as a charter school under the umbrella of Gem Innovation Schools of Idaho, Inc. (GIS) which operates five charter schools and four campuses in Idaho (the 5th school is an online campus). GIS is managed by a single Board of Directors and set of Business Executives. Under Idaho law, each school in the network is financially distinct and independent from the others and funds cannot be intermingled. Additionally, the school receives mentorship, grant management, and philanthropic guidance and support from a non-profit third-party organization.The Aa3 enhanced rating reflects the credit quality of the State of Idaho (Aa1 stable) and its moral obligation pledge under the provisions of the Idaho Public Charter School Facilities Program. The program's strengths include statutory requirements that the Idaho Housing and Finance Association and the Governor request the legislature to make an appropriation to replenish the bonds' debt service reserve fund in the event of a draw on that fund. The rating also reflects the essentiality of charter schools in the state's K-12 education system and the state's established track record of making appropriation-backed debt payments under certain financing agreements for state projects. The two-notch distinction between the programmatic rating and the state's issuer rating reflects the weaknesses inherent in the contingent, subject-to-appropriation nature of the state's support.RATING OUTLOOKThe stable outlook on the underlying rating reflects our expectation that Gem Prep: Nampa will maintain its market position and financial performance, leading to improved liquidity and debt service coverage over the next several years. Enrollment growth is projected to be driven by annual economic expansion in the area and a strong waitlist relative to current enrollment.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Financial trends that outpace proforma projections and lead to materially improved days cash on hand and/or debt service coverage- Reaching full enrollment under the charter without compromising leverage, liquidity, or operating performance- Material improvement of academic performance relative to peers leading to an improved competitive profile- Upgrade of the State of Idaho's issuer rating (enhanced)FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Trend of weak academic performance resulting in operational and/or enrollment pressure or nonrenewal of charter- Material erosion of operating liquidity or decline in debt coverage levels commensurate with a lower rating category- Downgrade of the State of Idaho's issuer rating (enhanced)LEGAL SECURITYThe Series 2022 bonds constitute special, limited obligations of the issuer payable solely from payments received pursuant to a loan agreement and trust indenture between Gem Prep: Meridian and the Idaho Housing and Finance Association (Issuer). Under the loan agreement, Gem Prep: Nampa's pledged revenues include all state and Charter School Facility Payments allocable to the school along with all revenues, rentals, fees, third-party payments, receipts, donations, contributions and other income derived from the operation of the school. The school has also executed a deed of trust pledging the campus as security for repayment.The school has been approved and intends to use the Idaho Public Charter School Facilities Program. A key requirement of the program is a direct-pay arrangement for debt service, whereby all state per pupil payments to the school are sent directly to the bond trustee to set aside funds in accordance with the bond indenture. The bonds will also benefit from a debt service reserve funded at the lesser of the standard three-prong test and at least twelve months of debt service. The school's fixed costs are anticipated to remain manageable post-issuance at less than 20% of operating revenue, which, when coupled with the school's satisfactory liquidity position, provides flexibility to address most operational challenges that could arise.USE OF PROCEEDSBond proceeds will be used to purchase the school's existing facility, which is presently leased, and fund the debt service reserve.PROFILEGem Prep: Nampa is a public charter school located in Nampa, Idaho. The school operates a single-site K-12 charter school building serving 457 students in the 2021-2022 school year. The school's charter and facility have capacity to serve 600 students.METHODOLOGYThe principal methodology used in the underlying ratings was US Charter Schools published in September 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1039451. The principal methodology used in the enhanced ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments Methodology published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1298498. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.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. Kenneth Surgenor Lead Analyst REGIONAL_SOUTHWEST Moody's Investors Service, Inc. 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