Credit Enhancement Program

1) The Applicant should have a minimum enrollment of 400 students. The UCSFA will consider an Applicant with enrollment of less than 400 students for Program eligibility if the Applicant’s waiting list is large enough to offset the greater risk that is associated with smaller enrollment.

2) The chartering entity must include in its letter of certification to the UCSFA an enrollment history for the Applicant since its inception, broken down by grade, and totaled.  This information must include the numerical limit on enrollment as listed in the Applicant’s charter agreement.  A drop in total enrollment in any of the most recent five years must be analyzed and satisfactorily explained by the Applicant.  Total enrollment should be stable or increasing.  Enrollment that has dropped by more than 5% in either of the two most recent years, or by more than 10% in the most recent year, is a negative factor.

3) The chartering entity will also certify that the Applicant’s most recent total re-enrollment rate is not less than 80%.  If the most recent re-enrollment rate is less than 80%, the Applicant must demonstrate that it serves a student population with unique itinerant characteristics and a history of enrolling new students that consistently offsets the risks of a low re-enrollment rate.

4) The Applicant should maintain, for the three consecutive years preceding application, an Average Daily Membership (ADM) rate, as calculated by the chartering entity, of 90% or greater.

5) The Applicant must provide the following:

• Its waiting list for enrollment by grade. The waiting list must be maintained electronically and updated annually. Each student on the waiting list must be updated and confirmed electronically or in writing each year.  Waiting list details must include the date each application was received or confirmed, and duplicate applications must be eliminated from the waiting list as part of the annual update and confirmation process. When a child is accepted or declined for enrollment, that child must be removed from the waiting list.  The Applicant must certify to the UCSFA as to the waiting list’s accuracy and effective date.
• Its annual re-enrollment rate by grade for the three consecutive years.

The Applicant’s chartering entity will include within its certification a determination that the Applicant’s academic performance is adequate to maintain its enrollment plans, summarizing:

1. Applicable academic performance standards;
2. The Applicant’s performance relative to competing schools; and
3. The analysis used by the chartering entity to make such determination.

1) The Applicant shall have in place sound and detailed management policies and practices, adopted by its Board, which guide all aspects of financial, debt, risk management, and post issuance compliance requirements. The Board should also have a succession plan for key personnel and a contingency plan for the potential loss of key expertise, which should clearly document board recruiting plans and activities in detail.

2) The Applicant’s Board should include members with legal, accounting, and educational expertise. Board members should serve staggered terms and should not be related to any individual that is involved in the day-to-day management of the school. Exceptions must be disclosed to the UCSFA and maintained in conformity with the provisions of 53G-5-409 .  High turnover rates among board members will be a negative factor.

3) The Applicant must employ a financial officer who has been trained in accounting and/or finance, who should have at least five years of experience in the finance or accounting fields, and who has demonstrated the ability to maintain accurate financial records.  Alternatively, the Applicant may employ a charter school educational service provider with proven expertise and a good track record for at least three years in the financial management of charter schools.

4) The Municipal Advisor to the Authority will confirm that the Applicant has demonstrated reasonable proficiency in forecasting revenues and expenditures as shown by a comparison of budgeted to actual revenues and expenditures for each of the last three years.  Actual revenues and expenditures should deviate no more than 5% from the Applicant’s original budget over the last three years. Deviations greater than 5% must be satisfactorily explained by the Applicant and such explanation must be supported with relevant data.

1) Enrollment, weighted pupil unit, and cash flow projections must be based on reasonable, conservative, and well-developed assumptions.  Projected enrollment will be compared to the capacity of the projected facilities as well as to the timing of the availability of new facilities to be constructed with bond proceeds.  The Applicant must provide assurance that the facility has capacity to operate at the projected enrollment levels.  Projected cash flows that depend upon rapid enrollment growth could be a negative factor.

2) The Applicant must meet the following Debt Coverage Ratio at the time of application:

3) The Applicant must meet the following Debt Burden Ratio at the time of application:

4) The Applicant must meet the following Operating Margin requirement at the time of application:

5) The Applicant’s Current Ratio should be at least 150% at the time of application. Further, the Applicant should demonstrate stable and/or improving performance as measured by this ratio, demonstrating substantial compliance for the three years prior to application.

The Current Ratio is defined as current assets (excluding restricted assets) divided by current liabilities, (excluding short-term debt, such as lines of credit and loans used for operating purposes).

The Applicant’s legal bond documents must include the following:

1) The debt must be a full faith and credit general obligation of the Applicant;

2) Bond purchasers must be granted a first lien mortgage on the facilities being constructed, purchased, or refinanced with bond proceeds;

3) A fully-funded debt service reserve fund held by a Trustee.  The reserve must be equal to maximum annual debt service on the bonds. (This reserve is separate from and in addition to the Charter School Reserve Account.)  The bond documents must require that the Trustee report to the UCSFA immediately any deficiency in loan payments to be deposited in the bond fund.  In addition, the Trustee must be required to notify the UCSFA by November 15 of each year regarding any shortfall in the Applicant’s debt service reserve fund;

4) Debt service payments must be structured to allow for timely appropriation by the legislature to restore amounts on deposit in the Applicant's debt service reserve fund if ever drawn upon (e.g. semiannual payments of April 15 and October 15);

5) A flow of funds schedule that allows the Trustee to intercept WPU revenues and capture debt service payments and other related amounts before the remaining funds are transferred to the Applicant;

6) A covenant that the Applicant maintain sufficient insurance on all facilities which act as collateral for the bond issue;

7) A covenant that the Applicant maintain a minimum debt coverage ratio (based on projected maximum annual debt service) throughout the life of the bonds equal to the table found under the Financial Performance drop-down;

8) An additional bonds test coverage ratio wherein projected net available revenues must be equal to the table found under the Financial Performance drop-down. Exceptions may be made for refunding bonds if, after the refunding, annual debt service payments decrease.

9) An acceptable environmental assessment report (at minimum a Phase I report dated within six months of bond issuance with a reliance letter to the Authority and bond trustee);

10) Provisions that require that the Applicant obtain the consent of the UCSFA related to changes in the debt service reserve requirements, amendments to the Indenture or Supplemental Indenture, and changes to the maturity schedule of the bonds, including acceleration;

11) Provisions that require the Applicant to provide notice to the UCSFA in the event of any defaults, draws on debt service reserve funds, bond refundings, changes in the Trustee, the commencement of any legal proceedings against the Applicant, or the commencement of any bankruptcy proceedings;

12) In the event of a draw on the state’s moral obligation, a covenant that the Applicant will replenish the money to the State by reimbursing the Charter School Reserve Account;

13) The proposed debt service schedule must provide for roughly level annual debt service payments. This includes principal and interest after any initial capitalized interest period or a period of projected enrollment growth not exceeding two years.  This should allow for the application of the debt service reserve fund to the final payment on the bonds. The schedule may not incorporate or take into consideration the annual assessment which is described below.

14) Provisions that require any additional bonds issued under the bond documents to be issued under the Program, without consent from the Authority Board.

In the event of a draw on the state’s moral obligation, the UCSFA must be granted the same rights typically provided to bond insurance companies.  These include:

1) The right to step into the position of the bond holders and direct proceedings to enforce remedies under the terms of the Program and bond loan documents including the right to mandate certain expenditure reductions and controls and to accelerate the bond debt;

2) The right to receive notices;

3) Indemnification by the Applicant for expenses in connection with the enforcement, defense, or preservation of rights under the Indenture, including litigation.

The Applicant must covenant with the UCSFA that it will provide certain continuing disclosure information to allow the UCSFA to monitor certain key financial information. At a minimum, that information should include the items set forth below.

The Applicant must covenant with the UCSFA to file with the MSRB’s Electronic Municipal Market Access (EMMA) website the following:

1) Annual financial statements (including the auditor’s certification of compliance with all debt coverage requirements).

2) Updated enrollment waiting list information, broken down by grade, which meets the requirements.

3) Current enrollment history, broken down by grade and totaled.

4) Current re-enrollment data by grade level.

5) The school’s annual budget within 30 days of its adoption;

6) The school’s unaudited quarterly financial statements within 60 days of the end of each calendar quarter, which shall include a comparison of such calendar quarter to the budget of the school.

In November or December each year, commencing on or about the first November following the issuance of bonds approved for enhancement by the Authority, the Applicant shall arrange an annual conference call with registered owners, beneficial owners, and potential purchasers of the bonds, regarding the Applicant’s performance for the period ending June 30. The call shall address, at a minimum:

1) Enrollment data and trends

2) Budget overview

3) Discussion of fiscal year-end financial statements and the final audit thereof

4) Academic performance

5) Financial performance

6) Other material factors or events which reflect the school’s performance outlook

The Applicant shall provide at least 30 days’ notice of such calls to the Electronic Municipal Market Access system for municipal securities disclosure established by the MSRB and accessible at http://emma.msrb.org (EMMA).

The Applicant must covenant that if it fails to meet its debt service coverage requirements, the Applicant will immediately report the event to the UCSFA and pursue cost containment measures and/or efforts to increase enrollment.

1) The UCSFA will assess a one-time, up-front assessment equal to 1.5% of the par amount of the bond issue.  This fee will be payable upon bond closing and will be deposited into the Charter School Reserve Account net of any fees and expenses of the UCSFA.  This assessment will not be returned to the Applicant upon final payment of the bonds, but will remain the property of the State of Utah.  No new up-front assessments will be charged for refunding issues if the bonds being refunded were issued under the Program and subjected previously to the up-front assessment.

2) The UCSFA will charge an annual assessment as follows:
a. For Schools rated BB, 0.25% of the principal amount outstanding.
b. For Schools rated BB+, 0.15% of the principal amount outstanding.

This assessment is due on July 1 of each year the bonds are outstanding and will be deposited into the Charter School Reserve Account, net of any assessments and expenses, of the UCSFA. The annual assessment is charged in addition to the up-front fee.

3) If a participating Applicant fails to meet any of the covenants contained in the bond documents or its charter agreement, the UCSFA may increase the annual assessment deposited into the Charter School Reserve Account up to 0.50% of the principal amount outstanding.

1) The UCSFA will prepare an annual report to the Utah State Charter School Board and chartering entities detailing the applications received under this program and the disposition of those applications.