Where the Charter School Revolution Began, Some Schools Still Struggle Financially
When Minnesota became the first state to authorize charter schools in 1991, nobody could have guessed that the movement would expand to dozens of states across the U.S., grow to 8,000 schools, and develop a robust debt financing market, currently estimated at over $30 billion. But monitoring debt in the charter school sector is challenging. More than half of charter school bond issues are nonrated or have speculative grade (sometimes called “junk”) ratings. The large number of nonrated and speculative grade charter school bonds, coupled with infrequent secondary market trading, make it harder to determine the fair market value of bonds and raises the imperative for lenders and investors to gather accurate, timely data on school performance to monitor their portfolios and trading valuations.
Not surprisingly in a sector so diverse, financial performance varies widely, and Minnesota is no exception. While most of the schools in the state are doing well, using the School Improvement Partnership Database’s data analytics, it took only seconds to identify that there are 51 charter school borrowers in Minnesota with 2023 audited financial statements, and to analyze key statistics about these entities, including debt outstanding, enrollment, and financial performance.
These 51 entities, which include both freestanding schools and charter school networks (“CMOs”), have total debt outstanding of $1.04 billion and serve in excess of 36,000 enrolled students in 93 schools. Of the 51 borrowers, fourteen, or 27%, have low liquidity amounting to less than 45 days’ cash on hand, with one entity holding just 2 days’ cash! In addition, 10 of the 51, almost a fifth, lost money on operations in 2023, meaning expenses exceeded revenues. There were 5 entities that had less than 45 days’ cash and operating losses.
Users of the SIP Database have access to data analytics like this in seconds, including distress analytics, geographic & zip code location search, academic and demand data, charter status and authorizer information, and detailed audited financial information for 750 charter school borrowers. Audited financial statements are digitized and standardized with 100 data points of raw data and ratio calculations to enhance credit analysis and better assess the fair value of bonds. Analytics like this at your fingertips can improve the efficiency of credit analysis, portfolio management, and bond valuation.
Learn more about charter school data and the SIP Database here.
Liz Sweeney is Chief Data Consultant, School Improvement Partnership, which supports transparency and accountability in the charter school bond market, making it simpler for charter school bond investors, lenders, and credit analysts to track the progress of investments.
