(This is a correction for the release that went out
today, and contains amended bond proceeds information in the second
paragraph.)
The $64,780,000 Board of Trustees of the University of Alabama (UA) general revenue bonds, series 2006-A, and taxable series 2006-B fixed-rate general revenue bonds are rated 'AA-' by Fitch Ratings. In addition, Fitch affirms the underlying long-term ratings on $271.83 million of series 2004A, 2004B, and 2004C fixed- and variable-rate parity bonds. The series 2006A and 2006B bonds are expected to be sold the week of July 24, through negotiation by a syndicate co-lead by Sterne, Agee & Leach, Inc. and Merchants Capital. The Rating Outlook is Stable.
Bond proceeds will be used to finance various construction, equipping and renovation projects, including self-supporting housing and dining projects. Following the issuance of the series 2006 bonds, UA's total outstanding debt will increase to $387 million and include $37.6 million of general fee revenue bonds series 1997 and 2001 with a prior claim on the university's pledged revenues. No additional bonds may be issued with the prior pledge. The series 2006 bonds are secured by pledged revenues that include all legally gross revenues of the university other than state appropriations and restricted funds. Contemporaneous with the sale of the series 2006 bonds, the Crimson Tide Foundation, which supports the university's athletics activities, will join the obligated group. As of June 30, 2005, this entity reported $34 million of gift revenues, no operating expenditures, and net assets of $33.9 million.
The 'AA-' rating is primarily attributable to UA's increasing student demand, solid operating performance, increasing state appropriations, and strong management practices. Fall 2005 enrollment totaled 21,841, up 14% over fall 2001; freshmen applications are up 36% over the same period, while student matriculation increased to a strong 48% in 2005. Student retention is very strong at 86%. UA's sound financial profile is evidenced by strong average operating margins of 7.8% for fiscal years 2002 to 2005. Revenues increased by 17.3% between fiscals 2004 and 2005 to $501.7 million due to the consolidation of the Crimson Tide Foundation, which contributed to a 214% increase in contribution revenues.
Approximately 25% of UA's fiscal 2005 revenues were derived from state appropriations. Unlike other public universities, UA has not suffered from significant reductions in state appropriations. This is partially attributed to the state's establishment of a separate education trust fund that immunizes education from other cuts in general revenue activities. Between fiscals 2002 and 2005, UA's state appropriations were level. Due to recent growth in the economy, state support is rising. For the fiscal year ending Sept. 30, 2006, UA's state support will rise by 15% over 2005, and the 2007 budget calls for a 17.5% increase. Fitch rates the general obligation debt of the state 'AA'. Funding for UA is relatively diverse, with student generated income which includes tuition, fees and auxiliary revenue, contributing about 40% of the revenues, and contracts and grants providing 13% of the 2005 revenues. This revenue diversity contributes to more stable operating performance.
With the issuance of the series 2006 bonds, maximum annual debt service is expected to increase to $25.2 million and would represent a 5.0% use of fiscal 2005 revenues. UA's financial profile reflects sufficient available funds relative to operating expenses (48%) and debt (56%) in 2005, a growing net asset position, and management's strategic investments in faculty and capital assets. Debt-financed capital spending rose to $131.7 million in fiscal 2005 from $71 million in fiscal 2003. Following the issuance of the series 2006 bonds, pro forma debt will increase to $387 million or two-and-a-half times fiscal 2003 levels. Management anticipates issuing up to $75 million of direct debt and a comparable amount of off-balance-sheet debt in the next three to five years. Although Fitch views the debt load as an increasing burden, UA's growing endowment, projected growth in enrollment, increasing state support and other operating revenues coupled with the university's ability to manage its finances to positive operating margins, all lead Fitch to conclude that the debt burden is manageable.
The University of Alabama, located in Tuscaloosa, is part of the University of Alabama System which includes the University of Alabama at Birmingham, and the University at Huntsville. Each university has its separate president and issues debt secured by its own revenues. UA, founded in 1831, is the oldest institution of higher education in the state and is the only public university to offer a school of law.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
The $64,780,000 Board of Trustees of the University of Alabama (UA) general revenue bonds, series 2006-A, and taxable series 2006-B fixed-rate general revenue bonds are rated 'AA-' by Fitch Ratings. In addition, Fitch affirms the underlying long-term ratings on $271.83 million of series 2004A, 2004B, and 2004C fixed- and variable-rate parity bonds. The series 2006A and 2006B bonds are expected to be sold the week of July 24, through negotiation by a syndicate co-lead by Sterne, Agee & Leach, Inc. and Merchants Capital. The Rating Outlook is Stable.
Bond proceeds will be used to finance various construction, equipping and renovation projects, including self-supporting housing and dining projects. Following the issuance of the series 2006 bonds, UA's total outstanding debt will increase to $387 million and include $37.6 million of general fee revenue bonds series 1997 and 2001 with a prior claim on the university's pledged revenues. No additional bonds may be issued with the prior pledge. The series 2006 bonds are secured by pledged revenues that include all legally gross revenues of the university other than state appropriations and restricted funds. Contemporaneous with the sale of the series 2006 bonds, the Crimson Tide Foundation, which supports the university's athletics activities, will join the obligated group. As of June 30, 2005, this entity reported $34 million of gift revenues, no operating expenditures, and net assets of $33.9 million.
The 'AA-' rating is primarily attributable to UA's increasing student demand, solid operating performance, increasing state appropriations, and strong management practices. Fall 2005 enrollment totaled 21,841, up 14% over fall 2001; freshmen applications are up 36% over the same period, while student matriculation increased to a strong 48% in 2005. Student retention is very strong at 86%. UA's sound financial profile is evidenced by strong average operating margins of 7.8% for fiscal years 2002 to 2005. Revenues increased by 17.3% between fiscals 2004 and 2005 to $501.7 million due to the consolidation of the Crimson Tide Foundation, which contributed to a 214% increase in contribution revenues.
Approximately 25% of UA's fiscal 2005 revenues were derived from state appropriations. Unlike other public universities, UA has not suffered from significant reductions in state appropriations. This is partially attributed to the state's establishment of a separate education trust fund that immunizes education from other cuts in general revenue activities. Between fiscals 2002 and 2005, UA's state appropriations were level. Due to recent growth in the economy, state support is rising. For the fiscal year ending Sept. 30, 2006, UA's state support will rise by 15% over 2005, and the 2007 budget calls for a 17.5% increase. Fitch rates the general obligation debt of the state 'AA'. Funding for UA is relatively diverse, with student generated income which includes tuition, fees and auxiliary revenue, contributing about 40% of the revenues, and contracts and grants providing 13% of the 2005 revenues. This revenue diversity contributes to more stable operating performance.
With the issuance of the series 2006 bonds, maximum annual debt service is expected to increase to $25.2 million and would represent a 5.0% use of fiscal 2005 revenues. UA's financial profile reflects sufficient available funds relative to operating expenses (48%) and debt (56%) in 2005, a growing net asset position, and management's strategic investments in faculty and capital assets. Debt-financed capital spending rose to $131.7 million in fiscal 2005 from $71 million in fiscal 2003. Following the issuance of the series 2006 bonds, pro forma debt will increase to $387 million or two-and-a-half times fiscal 2003 levels. Management anticipates issuing up to $75 million of direct debt and a comparable amount of off-balance-sheet debt in the next three to five years. Although Fitch views the debt load as an increasing burden, UA's growing endowment, projected growth in enrollment, increasing state support and other operating revenues coupled with the university's ability to manage its finances to positive operating margins, all lead Fitch to conclude that the debt burden is manageable.
The University of Alabama, located in Tuscaloosa, is part of the University of Alabama System which includes the University of Alabama at Birmingham, and the University at Huntsville. Each university has its separate president and issues debt secured by its own revenues. UA, founded in 1831, is the oldest institution of higher education in the state and is the only public university to offer a school of law.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.