How to Predict Charter School Defaults
In a recent Florida charter school default, bondholders are receiving only 38 cents on the dollar after the sale of the school’s assets. The Florida charter school, Palm Bay Academy, struggled for years with declining enrollment and revenue, operating losses, and dwindling cash. Bondholders had been working with the trustee and the school for an extended period, according to a July 8, 2026 notice of distribution from the trustee, UMB Bank. Eventually, as the school’s performance failed to improve, bondholders agreed to the sale of assets and accepted a final payout of $4.9 million on $12.9 million outstanding debt. Senior lien bondholders received approximately 77 cents on the dollar, while subordinate holders got nothing, for a total payout of about 38 cents on the dollar.
Could the school’s default have been predicted? That’s impossible to say with certainty, but leading indicators of distress were apparent in the School Improvement Partnership (SIP) Database more than two years ago. The SIP Database contains several distress filters which users can apply individually or in combination to identify credit challenges before they mature into payment defaults.
The first leading indicator monitored by the SIP Database’s distress filters is student enrollment. Since charter school revenue hinges on per pupil payments, a meaningful decline in enrollment can foreshadow financial issues. The enrollment distress filter of the SIP Database highlights any drop in annual enrollment of 5% or greater with the press of a button. Enrollment data reported to the Florida Department of Education and displayed in the SIP Database show that Palm Bay Academy’s enrollment fell by 38% since 2019, including a 6.5% decline in 2026.
Palm Bay Academy Enrollment
Source: SIP Database, from data reported to the Florida Department of Education
A second leading indicator: negative net income. Operating losses often follow declining enrollment because charter school funding formulas generally rely heavily on per pupil funding. Fewer students, less revenue. According to the SIP Database, the school had negative net income in three of the last four fiscal years, totaling $1.9 million in losses. This included a loss of $757,000 in 2025.
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Often the third phase of distress is problems with liquidity. After experiencing declining enrollment and the attendant revenue losses, some schools are unable to make sufficient revenue cuts to balance operations, eating into cash reserves to make up the difference. A key liquidity metric is days’ cash on hand, a measure of liquidity and financial resilience. Higher days’ cash on hand indicates greater resilience because there’s a larger cushion to absorb financial stress. The SIP Database shows this metric was stressed starting in 2023, at 47 days. The metric subsequently declined to 13 days in 2024 and 22 days in 2025. Under the bond documents, the academy must maintain at least 60 days’ cash.
Palm Bay Academy Key Financial Indicators, fiscal year ended June 30
Source: SIP Database, from audited financial statements of Palm Bay Academy, Inc. * Total debt includes bonds, leases, notes, and lines of credit.
All financial metrics in the SIP Database are derived from audited financial statements. SIP employs multiple layers of quality assurance and standardization to ensure data accuracy and comparability.
By screening for declining enrollment, operating losses, and weak liquidity before a payment default occurs, investors and lenders can identify charter schools that may need closer monitoring, covenant enforcement, or debt restructuring. No database can predict distress and default with certainty, but the SIP Database can help market participants screen at scale for emerging distress. Screening results can be used in many ways by market participants, including reducing holdings where credit risk is increasing, avoiding credits with emerging risks, or identifying new high yield investment opportunity.
Authors: Alan Wohlstetter is Founder and President, and Liz Sweeney is Director of Strategic Partnership and Business Intelligence, School Improvement Partnership.
To learn more about the SIP Database, including user-controlled distress filters, contact alan@schoolimprovementpartnership.net
