Fitch Ratings affirms the unenhanced 'AA-' rating on $1.9 million Texas State University System (TSUS, or the system) Board of Regents Revenue Financing System (RFS) refunding bonds, series 1998. Fitch also retroactively assigns an 'AA-' unenhanced rating to various previously issued TSUS RFS bonds. TSUS has a total of $710.2 million in RFS bonds outstanding. The Rating Outlook for all bonds is Stable.
Rating Rationale:
The 'AA-' rating reflects the system's consistently positive operating performance, system-wide enrollment growth across virtually every campus, and consistent state operating and capital financing support.
Fitch's primary credit concern is the system's limited financial cushion and moderately high debt burden, both of which could be pressured in the future due to a substantial, five-year (2010-2015) $1.1 billion capital improvement plan (CIP), a significant portion of which could be debt-financed.
Key Rating Drivers:
Continued positive operating margin supported by steady enrollment growth at TSUS member institutions, conservative budgeting and notable tuition pricing flexibility.
Alignment of future new money debt issuances with commensurate increases in financial resources, including state appropriations.
Security:
RFS debt is secured by pledged revenues which essentially include legally available, unencumbered funds and balances of TSUS. At Aug. 31, 2008, the most recent date for which information is available, monies pledged to RFS debt totaled approximately $656.5 million.
Credit Summary:
TSUS' operating margin was a sound 5.9% for the fiscal year ended Aug. 31, 2009, and has been greater than 5% in every year since fiscal 2005. Student-generated revenues (net tuition and fees, and auxiliary revenues) and state appropriations are the system's primary revenue sources. Reliance on student-generated revenues increased over the last five years (to 44.6%, from 41.0% in fiscal 2005), while reliance on state appropriations declined slightly (to 32.0%, from 37.1% in fiscal 2005). Steady enrollment growth has been a key driver of revenue growth with full-time equivalents (FTEs) increasing 4.6% between fall 2007 and 2008. This continued growth comes despite the fall 2007 transfer of Angelo State University (ASU) from TSUS into the Texas Tech University System (RFS bonds rated 'AA' by Fitch). Fitch notes that in terms of unduplicated headcount enrollment, TSUS has already fully recovered the students lost due to the ASU transfer. Importantly, the system maintains notable pricing flexibility. The majority of its institutions charge tuition & fees below the statewide average for public universities of $6,557 (per data collected by the Texas Higher Education Coordinating Board for the current year).
The system's financial cushion remains modest, especially with respect to its outstanding long-term debt. Available funds (cash and investments that are not restricted) in fiscal 2009 of $396.9 million provided coverage of 43.5% of operating expenses, and 54.8% of long-term debt (including bonds, capital leases, and non-cancellable operating leases). The system's debt burden is moderately high with maximum annual debt service (MADS, occurring in 2011) equaling 6.8% of fiscal 2009 operating revenues. TSUS's CIP reflects the expectation for continued enrollment growth. The majority of the CIP (approximately $800 million-$900 million) is expected to be supported by RFS bonds. Half of that amount will only be issued if the state legislature approves tuition revenue bonds, which are eligible for full debt service reimbursement from state appropriations.
TSUS, created in 1911, is the oldest university system in Texas. Texas State University - San Marcos, the largest member institution, accounted for approximately 42.6% of the system's 72,172 enrolled students in fall 2009. Well over 90% of TSUS's student body hails from Texas. The system's chancellor recently announced his resignation, effective February 2010, and a search committee has been formed.
Fitch has also assigned an Assured Guaranty Municipal Corporation Insurer Financial Strength (IFS) rating of 'AA' with a Negative Rating Outlook to the issues listed below. As of Oct. 19, 2009, Fitch will solely provide insured ratings on bonds for which it has underlying ratings. Bond ratings for insured bonds are reflected on Fitch's web site as the higher of the IFS rating and the underlying rating. Further detail on the IFS and underlying rating for each CUSIP can be found on Fitch's web site at www.fitchratings.com.
Texas State University System Board of Regents (TX) rev financing system revenue bonds, series 2000;
Texas State University System Board of Regents (TX) rev financing system revenue bonds, series 2001;
Texas State University System Board of Regents (TX) rev financing system revenue & refunding bonds, series 2002;
Texas State University System Board of Regents (TX) rev financing sys rfdg bonds, series 2002A;
Texas State University System Board of Regents (TX) revenue financing system revenue & refunding bonds, series 2004
Texas State University System Board of Regents (TX) revenue financing system revenue & refunding bonds, series 2005
--Bond rating: 'AA' with a Negative Outlook (assigned Dec. 15, 2009);
--Underlying rating: 'AA-' with a Stable Outlook (assigned Dec. 15, 2009).
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Eric Kim, +1-212-908-0527
Douglas J.
Kilcommons, +1-212-908-0740
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com
