Fitch Ratings has affirmed the 'BB' rating on the following series of bonds issued by the Pinellas County Educational Facilities Authority on behalf of Pinellas Preparatory Academy, Inc. (PPA, Inc.):

--$8,670,000 revenue bonds series 2011A.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of PPA, Inc., which operates Pinellas Preparatory Academy (Pinellas Prep), a charter school serving grades 4-8, and Pinellas Primary Academy (Pinellas Primary), a charter school serving grades K-3 located in Largo, Florida. The bonds are further secured by a first mortgage lien over the facility in which the schools are co-located and a cash-funded debt service reserve.

KEY RATING DRIVERS

STABLE OPERATIONS: The 'BB' rating reflects Pinellas Prep's 13-year operating history, with multiple charter renewals and a track record of enrollment growth, coupled with solid demand for Pinellas Primary. The financial cushion remains low but generally positive operating results should continue to support slow growth in financial flexibility.

LIMITED HISTORY OF PINELLAS PRIMARY: Pinellas Primary's limited four-year operating history currently limits the rating. Per Fitch's charter school rating criteria, the calculation of debt service coverage therefore only includes Pinellas Prep. Transaction maximum annual debt service (TMADS) coverage on the series 2011 bonds from Pinellas Prep alone was just 0.8x in fiscal 2015. TMADS coverage rises to over 1.6x on a combined basis.

STANDARD SECTOR CONCERNS: Additional credit concerns include revenue concentration, a weak balance sheet cushion and a high debt burden, all of which are characteristic of the charter school sector.

RATING SENSITIVITIES

ACHIEVEMENT OF FINANCIAL METRICS: Continued improvement in operating performance yielding TMADS coverage by Pinellas Prep and growth in balance sheet resources could lead to an upgrade.

CHARTER RENEWAL: Five years of audited operating history for Pinellas Primary with at least one five-year charter renewal could lead to an upgrade. Pinellas Primary's initial charter expires in June 2016.

CHARTER RELATED CONCERNS: A limited financial cushion; substantial reliance on enrollment-driven, per pupil funding; and charter renewal risk are credit concerns common among all charter schools that, if pressured, could negatively impact the rating over time.

CREDIT PROFILE

One of PPA, Inc.'s key credit strengths remains Pinellas Prep's operating track record. Pinellas Prep is in its 14th academic year and has had its charter renewed three times to date, most recently in 2010 for a 15-year period. Fitch views the school's operating history and multiple renewals, coupled with its 15-year charter term, favorably.

Pinellas Primary is still operating under its initial five-year charter that was granted in 2011 and is up for renewal in June 2016. Fitch notes positively that both schools remain in good standing under their respective charters and continue to maintain a positive working relationship with their authorizer, Pinellas County School Board (PCSB).

DEMAND SUPPORTED BY SOLID ACADEMICS

Pinellas Prep currently enrolls 440 students in grades 4-8 and Pinellas Primary enrolls 324 students in grades K-3. On a combined basis, enrollment was flat over the prior year, which was expected due to the enrollment caps imposed by the schools' charters. Pinellas Prep and Pinellas Primary's current charters cap enrollment at 440 and 350 students, respectively. There are no plans to increase enrollment above current levels at either school.

In Florida, state statute permits charter schools designated as high performing, which Pinellas Prep is, to expand enrollment by 15% without requiring authorizer approval. Pinellas Primary could add additional students at any time, without requesting an amendment to the charter, which allows some budgeting flexibility; however, the school has no plans to do so currently.

The schools maintain actively managed waiting lists, with a total of 428 students wait-listed as of October 2015; 116 for Pinellas Prep and 312 for Pinellas Primary. Fitch views the schools' nearly full enrollment and sizeable wait lists as reflective of the community need and demand for its programs.

Academic performance at the schools remains solid. Pinellas Prep remains 'high performing' by the Florida Department of Education. Pinellas Primary does not receive a letter grade due to the lower grades it serves. The new Florida Standards were approved by the Florida Department of Education in February 2014, and implemented across the grades in the beginning of the 2015-2016 school year. Pinellas' test results will be evaluated under these new standards (like all schools in Florida) and assigned a new letter grade by the state. However, most recently available average FSA scores from 2014-2015 compare favorably to district and state averages according to management.

SLIM CUSHION; SOUND MARGINS

Fitch views continued enrollment stability and breakeven to positive operations as critical in driving balance sheet growth. The schools' current balance sheet resources provide little financial flexibility. On a combined basis, available funds (cash and investments not restricted) grew to $1.3 million as of June 30, 2015, which is up from $918,000 as of June 30, 2014. Available funds covered fiscal 2015 operating expenses ($5.5 million) and outstanding debt ($8.7 million) by an improved 23% and 15%, respectively. While these metrics increased from fiscal 2014 levels, they are still considered very low.

The fiscal 2015 combined operating margin was a positive 4.6%. On a stand-alone basis, Pinellas Prep's operating margin averages a sound 3.4% over a five year period (fiscal 2011-2015), though narrowed to 2.6% in fiscal 2015 from 6.4% in fiscal 2014. Pinellas Primary posted a strong margin of 10.1% in fiscal 2015, versus 3.3% in fiscal 2014. Fitch expects stability at the current margin levels over the near term.

Management anticipates improved profitability in fiscal 2016 due to increases in state per pupil funding (Fitch rates Florida GOs 'AAA' with a Stable Outlook). The recommended Florida First 2016-2017 state budget proposes revenue growth in fiscal 2017, which should boost educational funding statewide and lend further stability to the schools' funding profile. Similar to most charter schools, per pupil funding makes up the majority of the schools' revenue (90.4% on a combined basis in fiscal 2015).

HIGH DEBT BURDEN

The schools' financial leverage remains high, as measured by pro forma MADS coverage and burden. TMADS consumed a high 12.7% of the schools' combined fiscal 2015 operating revenues of $5.8 million. Total debt outstanding of about $8.7 million also represents a high 7.4x of combined net income available for debt service of $1.2 million. While high, further increases in state funding and a lack of additional capital needs should cause the debt burden to moderate over time.

Pinellas Prep is unable to cover the carrying charges on the series 2011 bonds with its current financial resources despite steady enrollment, solid academic performance and operating surpluses. Pinellas Prep's fiscal 2015 net income available for debt service of $576,000 covered TMADS of $738,000 by only 0.8x, which is similar to the fiscal 2014 level. Under Fitch's charter school rating criteria, a school having less than five years of audited operating history and no charter renewal is excluded from this calculation in pooled transactions.

Pinellas Primary has experienced strong demand to date and benefits from its affiliation with Pinellas Prep despite having only completed four full academic years under its initial charter. Fitch notes that when incorporating Pinellas Primary into the debt service calculation, TMADS coverage improved to an adequate 1.6x for fiscal 2015, which meets the debt service coverage covenant of 1.1x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Charter School Rating Criteria (pub. 05 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872774

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997967

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997967

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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