Fitch Releases Non-Rtd Descriptive Rprt For Covenant School -VA-.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 21, 2001

Fitch today released a non-rated descriptive report on the Industrial Development Authority of Albemarle County, Va.'s $15,600,000 educational facilities revenue bonds (The Covenant School Inc.), series 2001A and subordinate series 2001B. The bonds will sell in the near future via negotiation with Davenport & Co. LLC. Proceeds will be used to build a new campus for grades 7-12 of The Covenant School (Covenant), a 16-year-old, nonprofit, nondenominational Christian school with two campuses for kindergarten through twelfth grade (K-12) students in Charlottesville and Albemarle County, Va.

Fitch's descriptive report provides analyses of significant credit factors, including an evaluation of the strengths and risks of the project being financed. Since no request for a rating was made on this transaction, Fitch did not review all the information or complete all the procedures necessary to reach a final credit rating. Generally, Fitch regards unenhanced debt issued with financial characteristics similar to the described financing as below investment grade.

With this financing, Covenant will build a new campus on donated land. Simultaneously, management expects to end lease payments on a facility now serving K-6 students and move them to a former public high school building that the school owns and now uses for students in upper grades. These changes are intended to allow steady, moderate annual enrollment growth through 2010.

Credit strengths include demonstrated demand growth over time. The school's Christian-oriented mission appears unique among area independent schools, class sizes are small, and tuition is comparatively low. Moreover, academic and athletic performance has been strong, even when compared with that of more established private schools nearby. Management's expansion strategy appears strategic and reasonably well planned. Site work on the new campus is mostly finished, and construction risk appears low to moderate.

Credit weaknesses center on the school's limited historical financial resources. To cover future annual debt service requirements of $1.1 million to $1.3 million, Covenant must grow annual net operating revenues above current levels, estimated by the school at about $550,000. With this financing, an annual lease payment on the lower school facility of about $370,000 is expected to end. In order for future payments to be covered by cash flows and anticipated reserves, sensitivity tests prepared by the school's advisers suggest that current enrollment levels must be kept, tuition raised by an average 4.4% yearly, and strong spending control maintained, particularly in the near term. A larger tuition increase caused an enrollment decline in the past, suggesting that pricing flexibility is somewhat constrained. For Covenant to meet rate and capital reserve covenants and build financial capacity for future modernization of its K-6 facilities, moderate enrollment growth, expanded fundraising, and consistently larger tuition increases will also be required, consistent with management's plans. For a full copy of the report, "The Covenant School, Inc.: Industrial Development Authority of Albemarle County, Virginia," visit Fitch's Web site at "www.fitchratings.com" or contact Market Services at 800/853-4824.