Fitch Rates Upper Iowa University's 2010 Revs 'BBB+'; Outlook Stable

Fitch Ratings has assigned an initial 'BBB+' rating to the following Upper Iowa University (UIU) revenue bonds:

Iowa Higher Education Loan Authority

--$51,000,000 private college facility revenue and refunding bonds (Upper Iowa University Project), series 2010.

The Rating Outlook is Stable.

The bonds are expected to sell on or about May xx, 2010 via negotiation. Proceeds of the bonds will fund various capital improvement projects and refinance two currently outstanding loans.

RATING RATIONALE:

--UIU's healthy operating margins are due, in part, to its conservative budgeting practices and sound enrollment growth;

--Positive enrollment trends including increased student figures and matriculation rates are expected to continue;

--Liquidity ratios are low for the rating category, in part, because of UIU's annual contributions to pay-go capital; however, liquidity ratios should benefit to some extent from reimbursements as part of the current offering;

--While UIU is reliant upon student-generated revenues for budgetary support, relative revenue diversity stems from the various modalities by which the university offers its developed program offerings.

KEY RATING DRIVERS:

--Enrollment stability to support consistent operating surplus generation;

--Matching of future growth plans with the availability of resources.

SECURITY:

The bonds are unsecured general obligations of UIU, payable from legally available resources.

CREDIT SUMMARY:

Fitch views UIU's ability to consistently generate an annual operating surplus as a key credit strength. Averaging 5.6% annually over the past five fiscal years, UIU's solid margins are due, in part, to management's conservative budgeting practices. UIU's annual operating budgets assume no enrollment growth, despite historical trends to the contrary, and include a 5% contingency line item.

While student-generated revenues fund a fairly high 79% of UIU's operating budget, tuition and other fees are generated from diverse education modalities. Unlike most private universities that offer only a traditional campus environment, UIU's operation includes its flagship campus at Fayette and 15 extension centers located in five states, as well as its international and online degree programs. Fiscal 2009 tuition revenues were derived of external centers (36%), the center for distance education (32%), international programs (12%), the Fayette campus (14%), and non-Fayette graduate programs (6%). Fitch believes that the extent of UIU's program and revenue diversity provides some protection against fluctuating enrollment patterns that would otherwise result from changing economic cycles.

While its annual operating results and revenue diversity are favorable, UIU's liquidity position is below-average for the rating category. Fiscal 2009 available funds, defined as cash and investments that are not restricted, equaled 31.7% and 118.1% of operating expenses and debt, respectively. On a pro forma basis, available funds fall to just 25.9% of debt, including the current issuance. UIU often contributes current resources to annual capital needs, which has minimized its deferred maintenance costs but also limited its available funds. UIU will be reimbursed for approximately $3.9 million of past spending out of proceeds from the current issuance, but its liquidity position will remain modest. Fitch expects UIU to balance future growth initiatives with the availability of resources to maintain its current rating.

UIU, which was founded in 1857, offers both undergraduate and graduate degrees. Its main residential campus is in Fayette, Iowa. However, UIU maintains numerous extension and international centers, as well as an online program. Student enrollment has grown by a healthy 2.9% annually since fall 2005 and by 36% overall since fall 2000. With six distinct starting points during each academic year, students take two full-credit courses over eight week periods, providing flexibility to meet degree requirements.

Applicable criteria available at www.fitchratings.com include:

--'Revenue-Supported Rating Criteria' (Dec. 29, 2009);

--'College and University Rating Criteria' (Dec. 29, 2009).

Additional information is available at www.fitchratings.com

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contacts:

Fitch Ratings, New York
Douglas J. Kilcommons, [phone]
Colin Walsh, [phone]
or
Cindy Stoller, [phone] (Media Relations)
[e-mail]