Fitch Affirms Bromley East Charter School -Colorado- at 'BBB-'.

NEW YORK -- Fitch Ratings affirms the 'BBB-' rating of $12.8 million Colorado Educational and Cultural Facilities Authority charter school revenue bonds (Bromley East Charter School (Bromley) Project), series 2000A. The bonds remain the only charter school debt with an underlying or unenhanced Fitch investment-grade rating. Bromley enrolls 746 kindergarten through eighth graders in Brighton School District No. 27J, most of which is in Adams County, CO. The Rating Outlook is Stable.

The Stable Rating Outlook recognizes that Bromley's enrollment has recovered from a loss caused by the district's opening a new, nearby elementary school last year. Unaudited financial losses were modest. Bromley's cash position, 12.7% of spending at the end of the school's third year, remains adequate, although well below projections at the time of the bond sale. Student and parent demand now appears fairly well established, and nearby developments continue to expand.

Bromley's smaller grade 8-12 sister institution, Brighton Charter School (Brighton), continues to produce weak financial results and below average test scores. Since Brighton covers 10% of debt service through payments to Bromley, its operations could affect the rating in the future. District voters recently approved a bond to expand the existing, nearby high school and construct a new high school some distance away. In future years, Fitch will monitor the effects of these actions on Brighton's financial health. Bromley essentially is a breakeven financial operation; if forced to bear 100% of the debt burden, its limited financial flexibility would be seriously stretched.

The rationale for the 'BBB-' rating continues to rely on the growing district's clear need for the mortgaged Bromley facility. As of fall 2003, Bromley housed 8.4% of all students and 11.5% of K-8 students in the district. There is no district obligation to pay Bromley's lease payments to the nonprofit Community Education Center, Inc., which are pledged to debt service. The district granted a 31-year charter, subject to typical oversight protections, matching the life of the bonds, which mature finally on Sept. 15, 2030. Relations between the charters and the district were strained by payment disputes of recent years, typical of such relationships, which reportedly have been resolved.

Approximately $420,000 of bond proceeds allocated to Brighton was not spent. In February 2004, Brighton's board decided to distribute 90% of these funds to Bromley, which pays 90% of debt service, to be credited against Bromley's debt service requirements over 12 months. This distribution is treated as a loan by Brighton to Bromley, with 3.1% simple interest per annum. Because Bromley reportedly has budgeted to pay debt service from recurring revenues and continues to exercise spending discipline, Fitch expects that the net result of this action will be the accumulation of several hundred-thousand extra dollars on the balance sheets of one of the schools by the end of the 2004-2005 school year. Management has indicated that Brighton likely will end up with these resources for future capital improvements.