Rating Action: Moody's downgrades Global Outreach Charter Academy, Inc., FL's revenue bonds to Ba3, assigns Ba3 to new revenue bonds; outlook stableGlobal Credit Research - 30 Aug 2022New York, August 30, 2022 -- Moody's Investors Service has downgraded Global Outreach Charter Academy Inc., FL's (GOCA) revenue bonds to Ba3 from Ba2. Moody's has also assigned a Ba3 rating to Florida Development Finance Corporation (FL) $23 million Educational Facilities Revenue Bonds (Global Outreach Charter Academy Projects), Series 2022A, along with $485,000 Educational Facilities Revenue Bonds (Global Outreach Charter Academy Projects), Taxable Series 2022B. The outlook is stable.RATINGS RATIONALEThe downgrade of GOCA's rating to Ba3 is driven by a significant increase in leverage due to debt issuance to finance expansion. The board has strategically embarked on a growth focused mission including the debt financed purchase and construction of additional campuses.This creates substantial challenges for GOCA over the next two years. Debt service will increase 3x by 2025 before leveling after capitalized interest ends. As a result, future operating performance, debt service coverage, and liquidity will be highly dependent on GOCA achieving enrollment projections by fall 2024, an aggressive 50% increase over current enrollment levels. In addition, GOCA is challenged by weak academic performance as it approaches 2 of 3 charter renewal dates.The Ba3 incorporates the benefits from a growing population base in Duval County Public School district (DCPS), an experienced management team and board of trustees, along with fair authorizer oversight. GOCA has a history of enrollment growth which has historically supported adequate debt service coverage and liquidity. Currently, of the three charters which make up the obligated group two are expected to be fully enrolled for fall 2022 and the third expects to start enrolling Fall 2024.Global Outreach Charter Academy, Inc. is the sole member of GOCA LLC and parent of four GOCA charter schools, three of which make up the obligated group. GOCA Inc, a non-profit, is a family founded and operated enterprise which inherently includes a degree of key person risk.RATING OUTLOOKThe stable outlook is underpinned by GOCA's Arts campus project long period of capitalized interest which provides the school 12 months post construction completion capitalized interest in which it expects to achieve full enrollment and staffing. Likewise, construction management team is experienced which partially mitigates the risk associated with the GOCA Arts campus development. Critical to maintaining the stable outlook will be improvement of its academic performance as its approaches its charter renewals in 2024 and 2025 and meeting projected enrollment.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS - On time and on budget completion of ongoing construction projects - Improved academic performance and successful charter renewal- Meeting enrollment projections- A post capitalized interest coverage and liquidity trend above 1.2x and over 100 days days Cash on handFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Inability to meet projected enrollment or financial targets- No improvement of academic performance- Weak liquidity or coverage levels that impair operating flexibility- Charter renewal which results in materially costly findings or term that is less than five yearsLEGAL SECURITYThe Series 2022A&B bonds are on parity with the series 2021 bonds. Bonds are secured by payments to be made by GOCA Properties LLC (the obligor) to the Florida Development Finance Corporation (the issuer) pursuant to the Loan Agreement. GOCA Properties LLC's sole member is Global Outreach Charter Academy Inc.Under the Master Indenture, all of the bonds are equally and ratably secured by the pledge and assignment of a security interest in the Trust Estate. The first lien mortgage is supported through a Future Advancement and Mortgage Spreader Agreement, where all the facilities owned by GOCA LLC equally share in the lien of all facilities. The bond covenants include a 1.1x debt service coverage ratio and days cash on hand of at least 45 days. If the ratio is less than 1.1x and days cash on hand is less than 75 days or days cash is less than 45 days GOCA is required to hire an independent management consultant to review and analyze operations, submit written reports, and make such recommendations, as to the operation and administration of GOCA to achieve at least 1.1x ratio for the following year.An event of default arising from failure to achieve the debt service coverage ratio shall only occur if the ratio is below 1.0x. Additional covenants include an additional bonds test which requires a historical coverage ratio for the prior 12 months of at least 1.1x debt Service plus lease payments and a projected coverage ratio that requires 1.2x future Maximum Annual debt Service including all parity debt as well as the additional debt and lease payments. The debt service reserve fund is at least 10% of principal amount of 2022 bonds, 125% of annual debt service, or 100% of MADS.USE OF PROCEEDSBond proceeds will be used to purchase land, construct and furnish facilities, pay debt issuance costs, and fund debt service and capitalized interest. Projects include the completion of an expanded facility funded with the series 2021 bonds at the high school campus and purchase and build a new GOCA Arts campus for grades K-8.PROFILEGlobal Outreach Charter School, Inc. operates a 5 campus, 4 charter K-12 charter school system operating in Jacksonville, Florida. As of academic year 2021-22 the school served 1,447 students in grades K-11 across 3 of its 5 campuses. The obligated group consists of its flagship GOCA Elementary Middle School "Cub" campus (K-2) and "Grizzly" campus (3-8) together totaling 1,107 students, the new high school campus "Kodiak" serving 340 students in grades 9-11 (grade 12 enrolling fall 2022). Fall 2022 enrollment for GOCA obligated group is 1,627. GOCA Arts, a newly received charter is expected to open fall 2024. The obligated group charters are all 5 year terms expiring in 2024, 2025, and 2028 respectively. GOCA Inc will also be opening for fall 2022 GOCA Intercoastal for grades (K-4) expected to expand to K-8 in subsequent years. GOCA Intercoastal is not a member of the obligated group.METHODOLOGYThe principal methodology used in these ratings was US Charter Schools published in September 2016 and available at https://ratings.moodys.com/api/rmc-documents/64397. Alternatively, please see the Rating Methodologies page on https://ratings.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. 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