Noble Network of Charter Schools
Charter schools are a flashpoint across the nation, yet as the larger charter sector reels, particularly those with unrated credits, some remain resilient, including one Midwest charter school that went to market last month.
Charter schools drove perhaps the worst January ever for impairments since Municipal Market Analytics began tracking default trends, the firm said in a Feb. 5 default trends report.
“Of last month’s 20 impairments, 10 were charter schools: perhaps the worst month ever for the sector,” MMA said in its report. “What’s more, there are now 88 charter schools in active status in the MMA database: an increase of 275% in the 29 months since September 2022.”
Only one of those newly impaired credits involved a payment default. Still, new impairments in the charter sector have jumped from 1 in 2023, to 3 in 2024, to 10 in just the first month of this year.
MMA noted that 24% of the 88 currently impaired charter school borrowers have active, uncured payment defaults.
And 30% of the charter schools that entered the MMA database for technical defaults between 1999 and 2023 eventually transformed to a payment default.
MMA Partner Matt Fabian said there are currently 72 unrated charter borrowers in the database, roughly the same proportion of unrated to rated borrowers as in other sectors.
Today’s operating environment for charters is just much more challenging on the cost side and much more uncertain on the revenue side, he noted.
“It’s more difficult to get kids in seats than it has been before,” Fabian said. “It’s more difficult to keep yourself fully staffed. The cost of owning property has gone up, both from insurance and from the costs of labor and supplies.”
Other issues for charter schools include testing and renewal processes, with “a more rigorous process” for renewal now after it eased during the pandemic, he said.
Additionally, federal pandemic aid, which is now running out, “helped paper over some of the [sector’s] issues,” he said.
Fabian noted the increased number of charter schools, with many in MMA’s database “smaller, single-facility operators.
“We might well be over-invested in charter schools,” Fabian said.
The charter sector is seeing the same divergence of credit prospects as the nonprofit healthcare sector and higher ed, he said. Size, wealth and ability to get rated matter more than they used to.
Seven Hill Prep Academy in Minnesota issued bonds in 2024 to resolve the school’s covenant-related impairment. The debt is already seeing more covenant trouble, according to MMA, with 17 days cash on hand (versus a target of 30 days).
The
“Minnesota and Michigan schools have a lower median rating level in comparison to the rest of our ratings portfolio, and I think that usually has to do with stories around enrollment and demand pressures, and then low liquidity,” said Mel Brown, associate director at S&P Global Ratings.
Neither Minnesota nor Michigan have caps on charter schools, and both encourage charter growth, according to the Network for Public Education’s
“All states with a strong charter cap, regardless of how long it had charter schools or what proportion of its students attended them, had failure rates below 30%,” the center noted in an
S&P is projecting a zero to 3% decline in the Midwest’s five-year school-age population growth rate from 2023 to 2028.
“As we’re talking about demographic challenges and increased competition, that is certainly something that ties the Midwest schools together,” Brown said.
The precise impact of demographic trends will vary according to what’s happening in each of the states, said Carol Corbett Burris, author of the October NCCSA report, who called Minnesota’s charter sector “very troubled.”
“The Midwest is a large area,” she said. “Ohio’s going to be impacted not only by declining enrollment but also by the growing number of vouchers. … The Ohio legislature seems to have made it very clear that they like every alternative to a public school that could exist. In Wisconsin, most of the charter schools are part of a school district and under district control.”
Burris noted some Midwest charters have turned to faraway conduit issuers — for example, Paramount Charter Academy in Michigan, which sold bonds through the Pima County, Arizona, Industrial Development Authority — to issue debt.
“Michigan has always had a troubled sector, and part of the reason for that is that Michigan has multiple authorizers … [who] get a cut,” she added. “They get 3% of all the revenue that goes into the charter school, so there’s a big incentive … to not be necessarily careful about who they authorize.”
Michigan also has a lot of for-profit charter operators — the most of any state in the U.S. — with 70% of its charters run by for-profits, followed by Ohio at 50%, Burris said.
“Frequently, those for-profit schools are small, they are sort of dropout recovery centers, and the for-profits like to run these dropout recovery centers because they don’t have to meet the same academic standards and the overhead is really low,” she said. “They will run them out of storefronts.”
Charter schools “are still an incredibly good risk” due to the public dollars supporting them, said Jeanne Allen, CEO of The Center for Education Reform, an advocacy group that promotes school choice.
Charters in states that do not provide enough or any capital funding are at more risk, Allen said. Less than half of states give charters complete financial autonomy, she noted, “and those that don’t tend to have more problems.”
Still, MMA’s report that showed troubling trends for the sector “is not a huge alarm bell,” Allen said. “A lot of charter schools will recover. A lot of charter schools will find support from other institutions. … Overall, a lot of the investments that are going to charters are going to networks. And sometimes the independents have a harder time sustaining financial solvency up front, but over time, it improves.”
Allen also predicted an increase in mergers for the charter sector in the coming years, with more schools combining to avoid closure.
In Illinois, S&P projects a greater than 5% decline in the school-age population growth rate from 2023 to 2028. But demographic trends and the woes of the wider sector did not stop Chicago’s Noble Network of Charter Schools from going to market late last month.
The operator of 18 charter schools across Chicago, Noble sold $27.43 million of Series 2025A and $1.29 million of taxable Series 2025B revenue refunding bonds through the Illinois Finance Authority on Jan. 22.
Ziegler priced for the Illinois Finance Authority the Series 2025A revenue bonds, with 5s of 9/2025 at 3.48%, 5s of 2030 at 3.71%, 5s of 2035 at 4.05% and 5s of 2039 at 4.32%, callable 9/1/2031. The firm also priced for the authority the Series 2025B revenue bonds, with 6s of 9/2025 at par, noncall.
The municipal advisor was Longhouse Capital Advisors. The bond counsel was Ice Miller.
The bonds are rated BBB by S&P Global Ratings. The outlook is stable.
Noble CFO Nikita Johnson-White said Noble refinanced its Series 2013 and Series 2015 bonds to take advantage of lower interest rates and reduce debt service costs, “allowing us to reinvest those savings into initiatives that directly benefit our students.”
“The Series 2025 bonds were successfully priced at an average yield of 3.96%, more than 2.0% below the average rate of the refinanced bonds,” said Johnson-White, noting the BBB stable rating from S&P. “This refinancing strengthens our financial position and supports long-term investments in our students.”
She added that Noble recognized early on that COVID relief funding was never going to be a long-term solution, and chose to focus on financial sustainability. “We made the tough calls — trimming costs where it made sense and investing where it truly matters — to ensure we weren’t dependent on short-term fixes,” she said.
Johnson-White’s advice to other charters is to “act early and don’t be afraid to make the hard decisions upfront. Focus on what you can control instead of getting sidetracked by external factors. Even small, positive moves within your budget can compound over time.”
The charter network also receives a significant amount of public funding: it got $192.2 million in state and local revenues in 2023, according to the OS.
S&P’s Brown said state funding “is something we are watching closely.” She noted the risks to education funding when states face a budget shortfall, as Illinois currently does, “given that it typically is a meaningful portion of state budgets.
“At this time, it looks like K-12 education funding is holding steady [in Illinois] for fiscal 2025,” she said. “Noble, for example, is anticipating a 4% increase in its funding overall for FY25. We will continue to monitor what happens over the next year as the state works to address the budget shortfalls in its outyear projections.”
For a network like Noble, “it’s more about the broader long-term risks,” Brown added. “[As] a charter school at the triple-B rating level, they’re at the higher end of all of our rated schools, at least in our rated universe in the charter school sector, so when we’re looking at risks, it’s really about the long-term. When we think about demographic trends, the things that they have to face externally, with increasing competition for a smaller market share of students, those are things that can sometimes impact schools.”
Still, large networks like Noble tend to fare better in an environment of increased competition, she said. They are better able to mitigate risks, managing costs through size and scale. Their market position, including brand recognition, often allows them to retain students.
“There’s a smaller pool of students each year, but as a market leader, schools like Noble are able to continue to attract enough students annually to maintain enrollment,” Brown said.
One wild card even for successful networks is federal policymaking under the new administration.
“For several years, we’ve been talking about the expansion of some of the voucher programs at the state level,” said Jessica Wood, managing director, education at S&P. “With the federal program, obviously there’s been a lot coming out of the new administration quite quickly.”
She believes a recent executive order “spoke about federal backing and support from a dollar perspective for expansion of school choice.”
“Our view is, that could create additional competition, because if there’s more dollars going toward parents, those dollars, if they’re being used toward moving students to private schools or other options, then certainly that from a credit perspective could create more pressures,” she said.
“The move toward vouchers suggests a potential obsolescence on the charter side,” MMA’s Fabian said.
The NCCSA’s Burris said the Trump administration recently
“Where those regulations happened was in the application process,” she said. “They said they were burdensome. So I have no idea what they stripped out, if they stripped all of them or just stripped some.
“They have this belief that the market is going to sort all of this out,” she added. “It’s such a change from the years when Republicans embraced public schools and local control.”
Fabian noted the charter credit landscape could change drastically if Republicans in Congress eliminate the tax exemption on private-activity bonds, or
Such a move could cause charter credit defaults to spike and make it tough for some charter operators to refinance debt, he said.
“If you’re invested in charter schools, you want to be invested in … charters with a well-established and sustainable track record,” Fabian said.