Bank's Wall Street woes hurting Grayslake charter school

Wall Street's lack of confidence in a Wisconsin-based financial company continues to push a black cloud over finances at Prairie Crossing Charter School in Grayslake.

An initial a downgrade in Marshall & Ilsley Corp.'s credit rating - or financial confidence indicator - was expected to cost Prairie Crossing an extra $100,000 in interest annually.

Now, Prairie Crossing board President Geoff Deigan said, that amount may double to an extra $200,000 in yearly interest payments on a $10 million loan because of further erosion in M&I's credit rating. M&I sold tax-exempt bonds for the borrowed cash.

M&I's credit rating was cut by two major services within days of each other in late April. Standard & Poor's also slashed M&I's rating in January.

Prairie Crossing board members at a meeting April 28 agreed to freeze salaries of all 64 employees for the 2009-10 academic year and made other cost-cutting moves because of the slide in M&I's credit rating.

"This is an example we're feeling right now of Wall Street affecting Main Street," Deigan said. "That was a blurb politicians were putting out there."

Deigan and Prairie Crossing Director Myron Dagley said a team has been trying to assemble a new financing package so the school won't need to pay an extra $200,000 in annual interest.

M&I sold the tax-exempt bonds allowing Prairie Crossing to get the $10 million a couple of years ago. The deal was supposed to save Prairie Crossing $150,000 in interest, with the only risk being a future downgrade in M&I's credit rating.

"No one at that time could have anticipated what would happen in the financial industry," Dagley said.

Fitch Ratings announced the most recent M&I downgrade on April 27. M&I's long-term issuer default rating went from A+ to BBB+, in part because of its construction and development portfolio in Arizona and Florida, according to Fitch.

In Standard & Poor's latest downgrade, M&I was moved to one level above junk status late last month. Fitch has M&I three rungs above junk on its rating scale.

Charter schools aren't allowed to operate with a budget deficit, which is why officials say a careful eye must be kept on Prairie Crossing's bottom line.

Offering an environmentally focused curriculum for 359 students, Prairie Crossing is within the boundaries of Woodland Elementary District 50 and Fremont Elementary District 70. The Woodland and Fremont children may attend Prairie Crossing without extra cost if selected from a lottery.

Prairie Crossing expected to receive about $3.1 million in state money for the Fremont and Woodland children in the 2008-09 academic year.