METHODOLOGY
THE ANALYSIS AND FINDINGS IN THIS PUBLICATION are based on a dataset that lists all primarily tax-exempt charter school bonds issued to finance school facilities from September 1, 1998, through December 31, 2022.
Research and data sources include the Electronic Municipal Market Access (EMMA) system operated by the Municipal Securities Rulemaking Board (MSRB), Bloomberg L.P., and The Municipal Market Monitor, as well as state department of education websites and state treasurer websites. This study also includes transaction information from conduit issuers such as the Massachusetts Development Financing Agency, Capital Trust Agency, and the District of Columbia.
We are confident that virtually all public offerings of primarily tax-exempt transactions for charter school facilities—and a significant portion of private placements—executed through December 31, 2022, have been identified, including transactions where no official statement was published.4 Tax-exempt transactions often incorporate a small taxable series meant to finance issuance expenses that exceed the federally mandated 2% limit, with its dollar amount being part of the total par amount for each offering.
In addition to public offerings of tax-exempt bonds, some charter school bonds have been privately placed with (that is, purchased by) banks. In a private placement offering, also referred to as a direct purchase, bonds are directly placed with a bank or other financial institution. These offerings are not subject to public disclosure or consistently included in municipal data systems, and many of the issues do not have official statements. Therefore, not all of them are included. We included private placement bonds in the transaction count and total par issuance to the extent we could identify the bonds and independently verify key information such as par amount.5
The dataset does not include fully taxable offerings such as U.S. Department of Agriculture guaranteed debt, or tax credit bonds such as Qualified School Construction Bonds or Qualified Zone Academy Bonds, unless the taxable series was a small piece of a larger, primarily tax-exempt issuance. We include bonds with a tax-exempt and a “taxable-convertible” series (i.e., that is scheduled to convert to tax-exempt upon the current refunding of an outstanding tax-exempt bond), regardless of the relative size of the taxable-convertible series.6 It also does not include tax-exempt bonds issued by developers or other third-party landlords that lease facilities to unaffiliated charter schools.
Bonds issued exclusively for cash flow management/working capital purposes (such as revenue anticipation notes), and the occasional instance of bonds in which the sole use of proceeds is funding furniture, fixtures, and equipment, are not included in the dataset.
As the charter school bond sector has evolved and matured, new transaction structures such as “obligated group” borrowers and other pooled bond issues supporting multiple schools in multiple states have emerged. Notable among these developments is the launch in 2017 of the nonprofit Equitable Facilities Fund (EFF) and its Equitable School Revolving Fund (ESRF), which was capitalized with an initial $200 million in philanthropic capital. The ESRF is a philanthropically enhanced pooled revolving loan fund that issues tax-exempt bonds and uses the proceeds (along with additional philanthropic capital) to make long-term, fixed-rate loans to charter schools. As of December 31, 2022, ESRF has issued more than $600 million in tax-exempt bonds and lent $970 million to charter schools. We do not include ESRF’s issuance in our dataset because the philanthropically enhanced pooled structure is fundamentally different from charter schools accessing the market directly, which is the focus of this study. Similarly, we do not include pooled issuances in which a foundation, developer, or other entity issues debt on behalf of multiple unaffiliated charter schools. The credit and security for those bonds is different from the credit and security offered by a charter school obligor.
We examine cumulative information and trends over the sector’s history, as well as updates and comparison of data from the first 17 years of the sector—from the first bond issued in 1998 through year-end 2014—and the 8-year period between 2015 and 2022 since the last comprehensive LISC analysis of the sector.
Comprehensive data was compiled for this study on each of the 2,180 rated and unrated public bond offerings and identifiable private offerings issued between September 1, 1998, and December 31, 2022. Thirteen offerings had 2 series with distinct credit factors (i.e., 1 series with credit enhancement and 1 unenhanced); therefore, the data-point count for certain analyses increases to 2,193. We examine cumulative information and trends over the sector’s history, as well as updates and comparison of data from the first 17 years of the sector—from the first bond issued in 1998 through year-end 2014, inclusive of the disruption and subsequent stabilization after the 2008-2009 credit crisis—and the 8-year period between 2015 and 2022 since the last comprehensive LISC analysis of the sector.
The medians and averages mentioned in this report are derived from data points that vary in number, depending on their relevance, disclosure in the offering documents, and availability in municipal market data systems. The quantity of data points used for each analysis is determined by the information available.
This report deals with financing concepts and terminology specific to tax-exempt bond issuance. A brief review of this terminology is provided in Appendix A. The long-term bond rating scales employed by the 3 major rating agencies are included in Appendix B for reference. Appendix C provides a list of research sources and additional resources. Appendix D includes data for each tax-exempt bond offering since 1998, organized by state. ■
4. Bonds for which no official statement was published or could be located are included in the dataset if the par amount of the bond was published in one of our data sources or otherwise verified (in the charter school obligor’s audit, for example).
5. Similar to publicly offered bonds without official statements, privately placed bonds are included in the dataset if we could identify them and verify key information such as par amount.
6. The taxable-convertible structure has been used for bonds issued after January 1, 2018, when Congress eliminated tax-exempt advance refundings. Our dataset includes taxable-convertible securities if they were part of an offering with a tax-exempt series but excludes solely taxable-convertible offerings.