Charter School Capital: ESSER Funds Eliminate Demand, 51-Day Sale Follows

Charter School Capital's chapter 11 case follows $189.5 billion in federal pandemic relief that reduced demand for receivables financing among charter schools. The Portland, Oregon-based company—founded in 2006 by Stuart Ellis and Brad Coburn to purchase future state funding receivables from charter schools—filed for bankruptcy on June 8, 2025, after ESSER funds reduced demand for its working capital solutions; it had deployed them to over 900 schools serving 2 million students.

The case unfolded alongside a dispute with majority investor Orthogon Partners, which held 52.1% of the company and won a $3.06 million arbitration award just weeks before the filing. Through an expedited 51-day sale process, New GS, LLC acquired substantially all assets as the stalking horse bidder, with no competing bids emerging despite investment banker Rock Creek Advisors contacting 306 potential buyers. The liquidation plan confirmed on November 26, 2025, provides 100% recovery to the $3.7 million in general unsecured claims and 0-7% to Orthogon's $58 million in preferred equity.

Company History

Founding and early years. Charter School Capital was founded in 2006 by Stuart Ellis and Brad Coburn, both graduates of the University of California, Berkeley. Ellis, who would serve as President and CEO, invested 50% of his personal net worth in the startup. Coburn, who became Chief Investment Officer, had started his finance career at Credit Suisse First Boston before meeting Ellis at Berkeley, bringing experience in secured debt and real estate transactions.

Charter School Capital developed a specialized financial product: purchasing accounts receivable representing future state per-pupil funding owed to charter schools at a discount, providing immediate liquidity to schools waiting for government payments. This addressed funding timing issues experienced by charter schools, which often waited months to receive state allocations while facing immediate operational expenses.

The company faced setbacks after securing initial funding from Barclays Capital, when Barclays abruptly closed its charter school division, taking funding from $100 million to zero overnight. Ellis and Coburn restarted with $2 million from an angel investor, rebuilding the business. The company funded its first school in December 2007, two years after founding.

Scale and market penetration. By the time of bankruptcy, Charter School Capital had deployed approximately $3 billion in funding to over 900 charter schools, supporting more than 2 million students—representing approximately one in eight of the 8,000 charter schools operating in the United States. The company's recognition included Ellis being named Ernst & Young's Entrepreneur of the Year in 2011 for providing funding resources to more than 200 charter schools and supporting over 90,000 students at that time.

Business line expansion. The company operated three primary business lines. Money To Run Your School was the core receivables financing operation, purchasing future state education funding from charter schools through non-debtor subsidiary Public Charter School Receivables Company, LLC (PCSRC). This line financed approximately $300 million in receivables annually at its peak prior to COVID-19, though volumes had fallen to just $32.6 million by calendar year 2024. At the time of filing, the company was financing 15-20 charter schools through this program.

Money To Buy Your School expanded the company into real estate, helping charter schools source, develop, and finance permanent facilities. In 2014, the company announced a $500 million facilities program through American Education Properties (AEP), a partnership with American Infrastructure MLP Funds. Through this program, Charter School Capital would acquire properties through special purpose entities, enter long-term leases with schools, and eventually exit through sales to non-profit organizations financed via municipal bonds. Acquisitions included three school facilities for $19.1 million in 2016—including St. Cloud Preparatory Academy in Florida for $10.3 million, San Jose Academy and Preparatory High School for $3.9 million, and High Point Academy in Texas for $4.9 million—and five Florida facilities for $71.74 million in 2017.

Kids To Fill Your School provided enrollment marketing, website support, social media strategy, and marketing collateral to charter schools. At the time of filing, the company served 36 schools through this business line.

Rebranding to Grow Schools. In November 2023, Charter School Capital rebranded to Grow Schools, reflecting a broadened mission beyond just financing. The legal corporate name remained Charter School Capital, Inc. while the company operated under the Grow Schools brand, with headquarters remaining at 1000 SW Broadway in Portland, Oregon.

Capital Structure and Investor Base

The company raised $67.1 million over three funding rounds through 2021. This included a $17 million venture round in April 2020 and a $48.6 million round on May 5, 2021, coinciding with the start of pandemic relief programs that reduced demand for the company's core products.

Orthogon Partners investment. In March and June 2023, existing preferred shareholder Orthogon Partners agreed to purchase $11.6 million of preferred equity securities. Orthogon, a New York-based private investment firm led by Rishi Ganti, deployed capital through two vehicles: Orthogon Charter School Special Opportunities LLP and Orthogon Charter School Special Opportunities II, LP. This investment increased Orthogon's stake to 52.1% on a fully diluted basis, making it the controlling shareholder.

Equity distribution at filing. The First Day Declaration disclosed the following ownership structure:

Ellis maintained control of voting rights through his holdings of Common A Shares, despite Orthogon's larger economic stake. Orthogon appointed Dr. Rishi Ganti to serve as its board representative.

Capital structure at filing. The company reported $10 million to $50 million in both assets and liabilities, with between 200 and 999 creditors. Key liabilities included:

The debtor had no secured or unsecured funded indebtedness, but had guaranteed obligations of indirect subsidiary GS 50 2nd Street, LLC under a loan agreement with Building Hope Finance in the principal amount not to exceed $8.5 million. The company also held significant intercompany receivables: approximately $1.24 million outstanding under the CSRC Intercompany Note and approximately $16.95 million under the CSREC Intercompany Notes.

The ESSER Disruption

The company cited reduced demand for its receivables financing following federal COVID-19 relief for schools.

Federal relief to schools. Congress allocated $189.5 billion in one-time funding for school districts through the Elementary and Secondary School Emergency Relief (ESSER) program. This funding arrived in waves: ESSER II funds were required to be obligated by September 30, 2023, and ESSER III funds by September 30, 2024, with liquidation deadlines of 120 calendar days thereafter. American Rescue Plan (ARP) spending was required by January 28, 2025.

Impact on Charter School Capital. Charter schools that previously needed to sell future receivables for working capital had direct access to federal funds, reducing the need for third-party financing. Bloomberg reported that pandemic-era subsidies "eliminated much of demand" for the company's services.

The First Day Declaration confirmed the impact: governmental agencies provided substantial monetary relief to public educational institutions—including charter schools—and the primary population served by the Money To Run Your School business line had experienced "a substantial decrease in the need for ongoing receivables financing." The COVID-related funding programs had since concluded, but schools generally remained in relatively strong financial condition with limited need for additional financing. The receivables volume decline was from $300 million annually at peak to $32.6 million in 2024, a reduction of approximately 89%.

Charter school sector data. S&P Global maintained a stable outlook for charter schools in 2025, noting that schools were expected to maintain healthy liquidity and operating margins despite the end of federal emergency funding. Charter school enrollment jumped 11.7% from fall 2019 to fall 2024, even as traditional public school enrollment fell 3.9%. The charter school market reached $49.6 billion in 2025.

Orthogon Dispute and Arbitration

The company's liquidity challenges were compounded by a dispute with its majority investor that resulted in a $3.06 million arbitration award weeks before the bankruptcy filing.

Origins of the conflict. In connection with Orthogon's $11.6 million preferred equity investment in 2023, Charter School Capital provided certain financial diligence materials. In August 2023, errors were identified in that financial diligence, and Orthogon demanded the return of its investment. However, the company had already deployed that capital to acquire real estate, making it infeasible to quickly liquidate the acquired properties or reverse the acquisitions to redeem Orthogon's preferred equity. The dispute escalated.

Settlement framework collapse. In June 2024, the parties began discussions around a settlement, drafting the "CSC Preferred Stock Framework." This framework contemplated that Orthogon would toll its claims against the company and, in exchange, receive certain rights with respect to asset monetization transactions and use of proceeds. However, the final documentation was never executed.

In November 2024 the company closed on a transaction involving the sale of two school properties, an asset purchase agreement for a third property, and refinancing of another property. While Orthogon had expressed support for this transaction between June and October 2024, board representative Dr. Rishi Ganti reversed his position, voting against and seeking to block the transaction at the board meeting where final approval was considered. The board ultimately approved the transaction over Ganti's objection, and it closed on November 14, 2024.

Arbitration proceedings. Orthogon challenged the November transaction as a breach of the CSC Preferred Stock Framework, filing an arbitration demand on December 20, 2024, with the American Arbitration Association. Charter School Capital responded and filed counterclaims. Hearings were held in April 2025.

On May 22, 2025—just seventeen days before the bankruptcy filing—the arbitrator issued an award in favor of Orthogon in the amount of $2,840,666.97, plus attorney fees of $213,975 and costs of $7,234.49, in addition to pre-judgment and post-judgment interest. Orthogon filed a petition to confirm in New York State Court on May 29, 2025. After an initial procedural denial, Orthogon refiled on June 4, 2025, with a return date of June 12, 2025.

Impact on sale process. The First Day Declaration emphasized that confirmation of the arbitration award and enforcement of any resulting judgment posed an immediate threat to the company's ability to continue as a going concern and consummate a value-maximizing transaction. Parties with whom the debtor had been engaged in sale discussions had expressed reluctance to move forward with the overhang of the arbitration award unresolved.

Reasons for Filing

The First Day Declaration identified multiple factors that led to the chapter 11 filing:

Demand decline. The reduction in activity in the Money To Run Your School business due to ESSER fund availability reduced the company's primary revenue source. Schools that previously needed receivables financing had access to direct federal support.

Failed capital raise. Since at least 2022, the company and its subsidiaries had experienced significant liquidity issues. The company unsuccessfully sought equity capital and other financing from 2022 through the petition date. Throughout 2023-24, the company engaged in multiple rounds of discussions with real estate lenders seeking higher advance rates for its special purpose entities' property acquisitions, but these discussions did not lead to transactions sufficient to refinance enough of the portfolio to solve liquidity challenges.

Municipal bond market disruption. A significant increase in interest rates and real estate carrying costs, combined with disruptions to the municipal bond market that the company needed to access to exit property investments, created additional financial stress.

Cost reduction measures. The company undertook various actions to reduce costs while maintaining operations, including reducing workforce headcount by approximately 40% since 2022. The company also worked with Colliers, CBRE, Raymond James, Morgan Stanley, and AON to market properties and raise financing, but these efforts proved insufficient.

Investor litigation. The Orthogon dispute consumed management attention and resources while creating uncertainty for potential acquirers. The $3.06 million arbitration award represented immediate liquidity pressure.

Acute liquidity constraint. At filing, the company had approximately $1.29 million in available cash on hand to service ongoing obligations—insufficient to continue operations without additional financing or a near-term transaction.

Restructuring Committee and Prepetition Preparations

In light of the Orthogon dispute and potential transactions being considered, the board in mid-April 2025 considered appointing independent directors to assess strategic alternatives. At that time, the board consisted of Stuart Ellis (with four votes), Bradley Coburn (one vote), and Rishi Ganti as Orthogon's representative (one vote). An additional board seat subject to Ellis's appointment was vacant.

On May 15, 2025, in accordance with the company's governing documents, Coburn resigned from the board, and Edward Weisfelner and Craig Jalbert were appointed as independent directors. Weisfelner, a Senior Managing Director at the Algon Group, brought over 30 years of restructuring experience, including leading roles in Puerto Rico, General Motors, American Airlines, and Energy Future Holdings. Jalbert, a principal at Verdolino & Lowey, P.C., had served as officer and director for thousands of distressed companies over his 30-year career.

On May 20, 2025, the board appointed Weisfelner and Jalbert to a Restructuring Committee to evaluate restructuring proposals. On May 30, 2025, the board delegated to the Restructuring Committee full authority to review, consider, and approve strategic alternatives—including authority to approve commencement of a chapter 11 case. On June 3, 2025, the company engaged Rock Creek Advisors to lead the sale process.

DIP Financing

The debtor secured a $5 million debtor-in-possession financing facility from East West Bank, N.A. to fund the bankruptcy proceedings and sale process.

The Interim DIP Order was entered on July 2, 2025, authorizing access to the first $2.5 million. The Final DIP Order followed on July 16, 2025, approving the full facility.

Security and priority. The DIP facility was secured by superpriority administrative expense claims under section 364(c)(1), first-priority liens on DIP Collateral under section 364(c)(2), and priming liens under section 364(d)(1). Interest was payable in kind, added to principal rather than paid in cash—reducing immediate liquidity demands.

Budget compliance. The DIP terms required strict budget compliance, with operating disbursements capped at 120% of budgeted amounts without lender consent. Weekly and monthly variance reporting was mandated.

363 Sale Process

Marketing campaign. Rock Creek Advisors conducted an extensive marketing process, contacting approximately 306 potential buyers. No competing qualified bids emerged beyond the stalking horse offer.

Stalking horse structure. New GS, LLC emerged as the stalking horse bidder, with the Stalking Horse Order entered on July 14, 2025. The bidder received customary bid protections including a break-up fee and expense reimbursement. Robert B. Hellman, Jr. filed a declaration in support of the sale, with Morgan Lewis & Bockius LLP serving as counsel to the purchaser.

Auction cancellation. On July 17, 2025, the court filed notice that the auction scheduled for July 18, 2025 was cancelled due to the absence of any competing qualified bids. New GS, LLC proceeded as the successful purchaser, acquiring substantially all assets of the debtor.

51-day sale. The case moved from petition (June 8) to sale closing (July 29) in 51 days.

Post-sale name change. Following the sale closing, the debtor filed to change the case caption to "Old School, Inc." on August 28, 2025, reflecting the transition of the operating business to the purchaser while the bankruptcy estate proceeded through wind-down.

Chapter 11 Plan of Liquidation

With substantially all operating assets sold to New GS, LLC, the remaining estate proceeded through a liquidation plan to distribute sale proceeds and resolve claims.

Plan documents. The debtor filed a Second Amended Combined Disclosure Statement and Plan on October 9, 2025, followed by a Third Amended version in November 2025. The Confirmation Hearing occurred on November 24, 2025, and the Confirmation Order was entered on November 26, 2025.

Creditor treatment. The plan provided for the following distributions:

General unsecured claims were small enough to be paid in full from sale proceeds, while preferred equity claims are projected to recover 0-7%. Common equity holders receive nothing.

Contested Matters

Orthogon objections. Orthogon filed preliminary objections to the sale motion on July 17, 2025, raising concerns about sale terms and treatment of preferred equity interests.

U.S. Trustee objection. The U.S. Trustee objected to the bidding procedures motion on July 21, 2025, challenging aspects of the proposed sale process.

Founder claims dispute. The debtor filed an Omnibus Objection on October 24, 2025, seeking to reclassify and subordinate certain claims asserted by Stuart Ellis and Brad Coburn. A court-approved Subordination Stipulation on November 19, 2025 addressed subordination and allowance of these claims.

Former employee settlement. On October 6, 2025, the court approved a Settlement Agreement between the debtor and former employee Molly Claire Benjamin, resolving discrimination and retaliation claims for $30,000. Orthogon's claim treatment was resolved through the plan's classification structure and the Subordination Stipulation.

Key Timeline

Professional Retentions

Professional fee applications were filed on a monthly basis, with an Omnibus Order Approving Interim Fee Applications entered on December 10, 2025.

Frequently Asked Questions

What caused Charter School Capital to file for bankruptcy?

Federal COVID-19 relief through ESSER funds provided charter schools with $189.5 billion in direct support, eliminating demand for the company's receivable financing products. The company's receivables volume dropped from $300 million annually at peak to just $32.6 million in 2024. Additionally, a dispute with majority investor Orthogon Partners resulted in a $3.06 million arbitration award just weeks before filing, creating additional liquidity pressure.

What was Charter School Capital's business model?

The company purchased future state per-pupil funding receivables from charter schools at a discount, providing immediate working capital. This addressed timing mismatches between when charter schools incurred expenses and when they received state funding. The company also provided facilities financing through property acquisition and management, and enrollment marketing services.

How large was Charter School Capital's impact on charter schools?

At its peak, the company deployed approximately $3 billion in funding to over 900 charter schools serving 2 million students—approximately one in eight of the 8,000 charter schools operating in the United States.

Who was Orthogon Partners and what caused the conflict?

Orthogon Partners was a New York-based private equity firm that invested $11.6 million in preferred equity in 2023, acquiring a 52.1% stake. The conflict arose after errors were identified in financial diligence materials provided during the investment. Orthogon demanded return of its investment, but the capital had already been deployed into real estate. The dispute escalated through failed settlement negotiations and resulted in a $3.06 million arbitration award in Orthogon's favor just 17 days before the bankruptcy filing.

What was the sale outcome?

New GS, LLC acquired substantially all assets as the stalking horse bidder. Despite Rock Creek Advisors contacting 306 potential buyers, no competing qualified bids emerged, and the auction was cancelled. The sale closed on July 29, 2025—51 days after the petition date.

How will creditors recover?

General unsecured claims of approximately $3.7 million will be paid in full with interest, representing 100% recovery. Orthogon's $58 million in preferred equity is projected to recover only 0-7% under the liquidation plan. Common equity holders—including founders Ellis and Coburn—will receive nothing.

Is the charter school sector in distress?

S&P maintains a stable outlook for charter schools in 2025, noting healthy liquidity and operating margins. Charter school enrollment grew 11.7% from 2019 to 2024, even as traditional public school enrollment declined 3.9%. The company cited reduced demand for receivables financing after ESSER funding.

What happened to the Grow Schools brand?

The operating business—branded as Grow Schools—was sold to New GS, LLC. The remaining bankruptcy estate was renamed "Old School, Inc." to proceed through the liquidation plan and distribute remaining proceeds to creditors.

What is the current status of the case?

The chapter 11 plan of liquidation was confirmed on November 26, 2025. The plan provides for distribution of remaining sale proceeds to creditors and wind-down of the estate. General unsecured creditors will receive full recovery, while preferred equity holders face 0-7% recovery on their $58 million investment.

What were the key factors cited in the bankruptcy filing?

Court filings and reporting cite reduced demand for receivables financing after ESSER funding and the Orthogon dispute as the primary factors. The sale process produced no competing qualified bids, and the liquidation plan projects full recovery for general unsecured claims and 0-7% recovery for preferred equity.

Who is the claims agent for Charter School Capital?

Epiq Corporate Restructuring, LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

For more bankruptcy case analyses and restructuring insights, visit ElevenFlo's bankruptcy blog.