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Noah Webster Basic Schools Inc., AZ Bond Outlook Revised To Stable From Negative On Stabilizing Enrollment

          NEW YORK (S&P Global Ratings) Sept. 20, 2017--S&P Global Ratings revised its outlook to stable from negative while affirming the 'BB' rating on the PIMA County Industrial Development Authority, Ariz.'s series 2014 and 2015 charter school revenue and revenue refunding bonds, issued on behalf of Noah Webster Basic Schools Inc. 
          "The revised outlook reflects our view of Noah Webster's at Noah Webster Schools Pima campus (NWS-Pima), which is more in line with projected expectations," said S&P Global Ratings credit analyst Beatriz Peguero. "Furthermore, increased enrollment has led to improved financial performance and lease-adjusted maximum annual debt service coverage that we view as more in line with the current rating." Given the debt structure and security features, as described below, we view all bonds as ultimately secured by the revenues of Noah Webster Schools Mesa campus (NWS-Mesa, or the obligated group). 
          NWS-Mesa constitutes the majority of assets, revenue, and enrollment of Noah Webster, and we view NWS-Mesa as integral to the organization's identity and future strategy. As such, based on our Group Rating Methodology criteria, released Nov. 19, 2013, the 'BB' rating is based on our view of Noah Webster's 'bb' rated group credit profile and the obligated group's core status. Accordingly, the bonds are rated on par with the group credit profile. 
          All numbers in this report, unless indicated otherwise, reflect the consolidated financials of Noah Webster, including NWS-Mesa, NWS-Pima, and LAS School Foundation (LAS), a 501(c)(3) created to manage facilities and fundraising for the organization. The rating applies only to the series 2014 and 2015 bonds and does not apply to Noah Webster as an organization. Our analysis is based on fiscal 2016 audited and fiscal 2017 full-accrual unaudited results since management does not expect material changes in the final audited presentation. 
          We assessed Noah Webster's enterprise profile as adequate, characterized by charters that are in good standing and in the early years of their 15- and 20-year renewals, and strengthening demand with growing enrollment and solid retention. We assessed Noah Webster's financial profile as vulnerable, with weak liquidity, a high debt burden and somewhat variable operating performance on a full accrual basis, though fiscal 2017 unaudited results demonstrate substantial improvement. We believe that, combined, these credit factors lead to an indicative standalone credit profile of 'bb' and a final rating of 'BB'. The series 2015 bonds are secured by a lien on the state payments received for NWS-Mesa on a parity basis with the unrated series 2011 bonds. 
          The series 2014 bonds are secured by revenues of NWS-Pima, and a series 2014 guarantee, which pledges NWS-Mesa revenues to the 2014 bonds in the event NWS-Pima's revenues are insufficient. NWS-Mesa's guarantee provides unconditional credit substitution in a timely manner without the ability to reduce or terminate the guarantee. As such, under our Guarantee criteria, published Oct. 21, 2016, we look to NWS-Mesa's credit profile in our analysis of the series 2014 bonds. The 2014 guarantee will remain in place until such time that a rating on the 2014 bonds would be maintained without the guarantee. 
          Noah Webster also has outstanding series 2011 bonds, which were originally secured on a subordinate basis, but were elevated to parity status so long as the guarantee from the 2014 bonds remains in effect. Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.