A Decade of Results: Charter School Loan and Operating Performance is an industry-wide study of 430 charter school loans, both outstanding and paid off, from 2000-2009. The study, conducted by Ernst & Young LLP and funded by the Bank of America Charitable Foundation, examined loans that totaled $1.2 billion and were made by 15 lenders to 336 schools. The lenders are mostly community development financial institutions (CDFIs) , which are non-profit organizations that provide financing for charter school facilities as part of community development or charter support missions. (In fact, three CDFIs — the Low Income Investment Fund, The Raza Development Fund and The Reinvestment Fund — commissioned the study).
The finding that charter schools are good borrowers did not surprise those of us who are closely involved with charter schools. This study, the first and only industry-wide research of charter school loans, is important because it proves that a vast majority of charter school operators manage their finances well and are responsible borrowers despite their relatively small enrollments, limited operating history and limited financial resources. To date, only a handful of lenders and bond investors are invested in charter schools due to the perceived credit risks and newness of the sector. We hope that this research serves as a tool to improve other parties’ understanding of the sector. Private capital investments by banks and investors are critical in the growth of charter schools. Some of the key findings of the report are: • Five loans totaling $12 million (or 1 percent) of the total loan amount made during the period ended in foreclosure; • Approximately $2 million (or 1 percent) of the foreclosed loans, net of recoveries, were written off as of June 30, 2009 (this figure excludes potential subsequent write-offs of foreclosed properties still held by lenders) • 3.6 percent of outstanding loans had been delinquent at some point over the 10-year study period for at least 60 days; • Strong academic performance is associated with better loan performance; and • In determining loan performance, occupancy costs seem to matter more to lenders than per pupil revenue, a message that controlling costs is important. Sometimes, it is hard to separate noise from facts. When it comes to capital financing, existing and potential lenders and investors, and other charter schools stakeholders, now have this report, which showed that the majority of loans made to charter schools over a ten year period yielded positive results, as a resource when making their decisions.
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