You may recall the Livermore Charter Schools in Livermore, California. In August, some 500 students fled the charters and returned to the public schools in the district.
Now the company that runs the charter schools has filed for Chapter 11 protection in bankruptcy proceedings. This enables them to default on their bonds and save money while they reorganize financially.
The two Livermore charters recently had seen a mass exodus of students to the local school district. On Nov. 14, the Livermore Valley Joint Unified School District plans on opening a satellite elementary school for more than 300 students coming from the charter school. In August, about 400 students from both the K-8 charter and high school left the charter schools for district schools.
A TVLC spokesman at the time denied the amount of students, and claimed that the district was inflating the numbers.
TVLC interim CEO Lynn Lysko said in a statement to parents on Tuesday that filing for bankruptcy was the first step in debt reorganization for the company.
Lysko said TVLC will continue to operate while “an agreement to reorganize their debit is negotiated with creditors and approved by the Federal Court.”
The company will have 120 days to propose a plan of debt reorganization, she said.
“TVLC’s action today is the next step in the organization’s work to clean up its fiscal house and directly address the concerns of the districts,” Lysko said.
The Bond Buyer reported (behind a paywall):
In a letter posted to the company’s website, interim chief executive officer Lynn Lysko explained that she inherited a multi-million dollar deficit when she took the interim CEO job six months ago and that the school has already made drastic cutbacks including a 70% management staff reduction.
Bondholders are the ones that stand to take a hit in the reorganization, because the school has already settled up with nearly all other creditors including the state pension plan.
The company has about $42 million of outstanding bond debt issued in 2012 and 2015 through the California School Finance Authority, according to financial documents filed on the Municipal Securities Rulemaking Board’s EMMA website, and it is that debt that the company hopes to reorganize.
“The vast majority of TVLC’s debt relates to the 2012 bonds and a 2015 lease agreement for school site renovation that were incurred under previous management,” Lysko wrote. “The present restructuring will allow TVLC to reorganize that debt in a responsible manner.”
Charters are a risky investment.
Diane Ravitch's blog 
No wonder Moody’s issued a warning regarding a downgrade in credit ratings of municipalities that are approving charters. They know hucksters when they see them.
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This outcome is expected when we socialize the risk, and privatize the profit. How is all this chaos benefiting our young people and our local communities?
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It doesn’t, r.t. But it’s the way the corporatocracy works.
Charters are riskier for many of the children, than they are for the investors. I don’t care about the investors. I do care about the children.
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I agree with you. The for profit model is not good for communities or students. When charters collapse, the taxpayers are on the hook, and the students are left hanging.
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In construction there is a performance bond, to ensure that work is completed with the given funds. Perhaps in CA, the state should make all charter schools buy performance bonds, in case they don’t finish out the school year.
Then the state still has money to fund the students education at the public school, or another functioning charter school.
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What about Virtual Academies such as CAVA owned by K-12, Inc. in CA?
It’s confusing since their stockholders seem to hold the reign of power.
Does CA give virtual academies bond funds too for satellites through out the state?
Wish that they would go bankrupt soon!
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Joan,
The legislature tried to prohibit for-profit charters but Gov Brown vetoed the bill.
That would have put K12 Inc out of business
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They should just be shut down and the “scholars” returned to public school. Enough already.
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A question because I am unfamiliar with the financial arrangements. The taxpayers are not being left holding any of the debt? They have been paid back?
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Alice — it depends on how the bonds are structured. If they were structured with a guarantee of some kind — for example — backed by the full faith and credit of California — the loss might hit the tax payers directly. However, taxpayers will pay either way — because if the Authority’s bonds default, the “cost” of future bonds (or current bonds, if they are variable rate bonds) issued by educational issuers will go up as the issuer is seen (by bondholders and rating agencies) as a more risky investment. That means that when “regular” public school districts try to borrow money — they will pay higher interest rates for their bonds — or (in a more draconian world — be denied access to the bond markets altogether.
Finally, if there is no general fund backing for the bonds — and the rating agencies wise up and simply refuse to rate them (or give them junk bond ratings), you can bet that the charter advocates will be back at the trough in Sacramento, coming up with some way to get generalized state or tax payer backing so they can continue to profit from charter schools.
Also, many people who buy municipal bonds are retirees and others on fixed or limited incomes (or the bond funds that cater to them). They are investors, and theirs is the risk — but I feel badly for those folks too. I am sure they had no idea how risky these investments were when they bought them — and they stand to lose the most.
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My father and step-mother lived in Livermore for years so I was there a lot. It looked like a nice suburban community and I couldn’t remember seeing any low income neighborhoods there, so I checked:
http://school-ratings.com/schoolRatings.php?zipOrCity=livermore&schName=&lastOB=rank&orderBy=rank&dir=standard&qty=32
There is one small area in Livermore with a low income Hispanic population, but these charter schools, while not being far from there, are not serving many of those students. The elementary charter school has 4% free and reduced lunch and the charter high school has 14% free & reduced lunch.
As can be predicted in most areas, the elementary school with mostly low income Hispanic students, and the largest population of parents there have less than a high school education. That grade school, as well as two alternative schools, have the lowest test scores. The other Livermore schools score above average. Both charters serve primarily higher income white kids whose parents are college educated. I see no evidence that these charters are needed to save kids from “failing” schools or that they are even attempting to do that.
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“Charters are a risky investment.”
Not risky enough, it would seem.
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