Fitch Ratings affirms the unenhanced 'AA-' rating on the Educational Facilities Authority for Private Nonprofit Institutions of Higher Learning's (Furman University) approximately $105 million of outstanding revenue bonds. The Rating Outlook on all bonds is Stable.
The 'AA-' rating reflects Furman University's (Furman) sound liquidity position, consistently positive operating margins, and proactive financial stewardship. Primary credit concerns include a high, though manageable, debt burden, exposure to variable-rate debt and an interest-rate swap, and recent volatility in student demand.
At the end of fiscal year 2008, Furman's available funds (unrestricted and temporarily restricted cash and investments) of $345 million covered both total long-term debt and annual operating expenses by three times (x). Based on an estimated 25% decline in investments during fiscal 2009, as well as a conservative haircut of all alternative investments reflecting their limited liquidity, Furman still maintains satisfactory coverage of 1.38x expenses and 1.42x debt. In addition, Furman generated positive operating margins of greater than 10% in 2007 and 2008. While the liquidity cushion and operating margin did weaken in fiscal 2009 (based on unaudited information provided by the university) Fitch believes Furman's management team is adequately addressing the effects of financial market turbulence and the overall recession by instituting cost controls such as a limited hiring freeze.
Due to the use of bullet maturities, maximum annual debt service (MADS) as a percent of revenues is a high 13.6% of operating revenues. Average annual debt service represents a more modest 5.1% of revenues. Furman's sound liquidity resources, including an annual distribution from the Duke Endowment, offset some of the concerns associated with this level of leverage. The university's series 2006B bonds (just over 40% of total outstanding bonds) are variable rate demand obligations (VRDOs), and Furman has a $17 million interest rate swap associated with these bonds. While the exposure does create some risk, Fitch notes that there have been no failed VRDO remarketings, and no collateral posting requirements on the swap.
Furman University, founded in 1826, is a private, co-educational institution located in Greenville, South Carolina. Full-time equivalents (FTEs) in fall 2008 were 2,737 students, a 7% decline over five years attributable largely to decreased state funding for graduate education for teacher training and development. Undergraduate FTEs, which make up the vast majority of Furman students, were virtually unchanged over the same period. Preliminary data for fall 2009 indicates a relatively small incoming freshman class of 693, versus a five year average of 739 between 2004 and 2008. While a notable drop, the university did budget for this decline.
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