a leading educational alternative
KIPP LA serves 5,765 students across 13 public charter schools in South and East Los Angeles. KIPP LA opened its first school in 2003 and is part of the larger KIPP network of schools operating in 20 states serving 80,000 students. With 90 percent of students qualifying for free and reduced lunch, KIPP LA focuses on preparing students in under-resourced communities for success in school, college and life. Generally, KIPP LA schools outperform competing schools with a higher percentage of students scoring advanced or proficient on state testing. KIPP LA has grown its student population from 2,180 in 12/13 to 5,764 for the 16/17 and has targeted 9,100 by 2020. The Series 2017 bonds were used to acquire land and construct three additional schools. In addition to the 2017 bonds, KIPP LA plans to issue an additional $45 million in the next 24 to 30 months as the last phase of expansion. The final planned network will consist of 20 schools in order to meet their 9,100 enrollment goal by 2020.
Management is deemed adequate consisting of an independent board that sets policy for the network and monitors and oversees performance of the central staff. The board consists of twelve members serving three-year terms and may be reappointed. The current CEO was the founding Board Chair of KIPP LA and has served as head of school since 2008.
Equus visited with management at their headquarters in March 2018. Serving inner-city populations, KIPP LA facilities are located along urban corridors and often occupy a mix of built-to-suit and existing commercial buildings.
There are two primary, and related, risk factors facing KIPP LA: growing enrollment and changes to funding at the state level. State funding is tied to enrollment and accounted for 75 percent of KIPP LA’s unrestricted revenues in 2017. An economic downturn would reduce state revenues and result in declined per pupil funding. KIPP LA does benefit from a substantial philanthropic community. The organization has averaged $12 million in donations over the past four years. Such support provides a cushion should enrollment slow, but cannot be relied for continuing operations.
Credit Decision and Commentary
KIPP LA benefits from being a part of a respected nation-wide network and philanthropic support from the community. Higher than average debt coverage levels and satisfactory DCOH cushion provides adequate safety for +45bps of spread to the 5Y MMD on May 24, 2018.
Continued Monitoring Factors
The success of KIPP LA and timely payment of debt service depends on the maintenance of stable growth projections. Should enrollment decline, KIPP LA can sustain a 12 percent dip in enrollment in 2020 and maintain 1.0x debt service coverage without cutting expenses or using cash reserves.
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