The Board of Regents of the University of Oklahoma (OU)
general revenue bonds, refunding series 2006A, in the approximate
amount of $113,840,000 have been assigned an underlying rating of 'AA'
by Fitch. The bonds are scheduled to sell on or about Sept. 25 via a
negotiated sale led by UBS Investment Bank. The Rating Outlook is
Stable.
Bond proceeds will be used to refund five series of outstanding OU bonds, listed below, that are secured by various revenue pledges. The series 2006A bonds are the first to be issued pursuant to the Oklahoma Higher Education Promise of Excellence Act of 2005, effective March 31, 2005 that allows OU to pledge all legally available revenues. OU may not pledge revenues appropriated by the legislature from tax receipts but may pledge revenues from the Oklahoma Education Lottery Act.
The 'AA' rating reflects OU's position as the flagship institution in the state, stable enrollment, positive operating performance given state funding reductions, significant fundraising not reflected on OU's financial statements, and an experienced management team. Fall 2005 headcount enrollment on the Norman campus was 26,994 and has remained relatively stable over the past five years. OU generally accepts 80% of its freshmen applicants and approximately 50% of the accepted students enroll.
Enrollment stability has contributed to OU's financial performance. The average annual operating margin for fiscal years 2002-2005 was 2.0%. The margin for fiscal 2006 is expected to be similar to the 1.7% for fiscal 2005. State appropriations for the current fiscal year 2007 are approximately 7% higher than fiscal 2006. The ability to maintain relatively stable financial performance given the state funding reductions can partially be attributed to management's actions to reduce costs.
OU benefits from endowment funds including $59 million on its financial statements. Not included on OU's financial statements are $474 million held by the OU Foundation, $151 million held by the State Regents, and $93 million held by the state land commission. When reviewing OU's liquidity for fiscal 2005, Fitch included $149 million of investments held by the OU foundation as available to meet OU's needs. Inclusion of this portion of the OU foundation's investments resulted in liquidity levels similar to other 'AA' public institutions rated 'AA' by Fitch.
The primary credit concerns are the debt burden and the low-growth demographics for young adults in the state. The projected change in the number of high school graduates between now and 2017 is 1%. Approximately 70% of OU's students come from the state. However, mitigating the weak demographics of Oklahoma is the fact that approximately 23% of OU's students come from Texas where the projected growth rate is 16%. To attract students, OU has focused on improving its housing and athletic facilities and has generally financed these facilities with debt. OU currently has $378 million of bonds outstanding. Maximum annual debt service (MADS) on bonds and capital leases is $29.3 million. MADS would consume 5.3% of fiscal 2005 revenues. The median for 'AA' Fitch-rated public universities is 3.0%. While OU's debt burden is higher than the 'AA' median, Fitch believes the debt is manageable since a significant amount of the debt is financed by revenue producing facilities. In addition, OU's plans for future debt issuance are a modest $37 million.
OU has campuses located in Norman, Oklahoma City, and Tulsa and is a member of Big XII Conference.
Bonds to be refunded:
-- Board of Regents of the University of Oklahoma
-- Multiple Facility Revenue Bonds, Series 1998
-- Athletic Facilities Revenue Bonds, Series 2001
-- Student Usage Facilities Revenue Bonds, Series 2001
-- Athletic Facilities Revenue Bonds, Series 2002A
-- Oklahoma Development Finance Authority Public Facilities Program Revenue Bonds (University of Oklahoma) Series A, 2000
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.
Bond proceeds will be used to refund five series of outstanding OU bonds, listed below, that are secured by various revenue pledges. The series 2006A bonds are the first to be issued pursuant to the Oklahoma Higher Education Promise of Excellence Act of 2005, effective March 31, 2005 that allows OU to pledge all legally available revenues. OU may not pledge revenues appropriated by the legislature from tax receipts but may pledge revenues from the Oklahoma Education Lottery Act.
The 'AA' rating reflects OU's position as the flagship institution in the state, stable enrollment, positive operating performance given state funding reductions, significant fundraising not reflected on OU's financial statements, and an experienced management team. Fall 2005 headcount enrollment on the Norman campus was 26,994 and has remained relatively stable over the past five years. OU generally accepts 80% of its freshmen applicants and approximately 50% of the accepted students enroll.
Enrollment stability has contributed to OU's financial performance. The average annual operating margin for fiscal years 2002-2005 was 2.0%. The margin for fiscal 2006 is expected to be similar to the 1.7% for fiscal 2005. State appropriations for the current fiscal year 2007 are approximately 7% higher than fiscal 2006. The ability to maintain relatively stable financial performance given the state funding reductions can partially be attributed to management's actions to reduce costs.
OU benefits from endowment funds including $59 million on its financial statements. Not included on OU's financial statements are $474 million held by the OU Foundation, $151 million held by the State Regents, and $93 million held by the state land commission. When reviewing OU's liquidity for fiscal 2005, Fitch included $149 million of investments held by the OU foundation as available to meet OU's needs. Inclusion of this portion of the OU foundation's investments resulted in liquidity levels similar to other 'AA' public institutions rated 'AA' by Fitch.
The primary credit concerns are the debt burden and the low-growth demographics for young adults in the state. The projected change in the number of high school graduates between now and 2017 is 1%. Approximately 70% of OU's students come from the state. However, mitigating the weak demographics of Oklahoma is the fact that approximately 23% of OU's students come from Texas where the projected growth rate is 16%. To attract students, OU has focused on improving its housing and athletic facilities and has generally financed these facilities with debt. OU currently has $378 million of bonds outstanding. Maximum annual debt service (MADS) on bonds and capital leases is $29.3 million. MADS would consume 5.3% of fiscal 2005 revenues. The median for 'AA' Fitch-rated public universities is 3.0%. While OU's debt burden is higher than the 'AA' median, Fitch believes the debt is manageable since a significant amount of the debt is financed by revenue producing facilities. In addition, OU's plans for future debt issuance are a modest $37 million.
OU has campuses located in Norman, Oklahoma City, and Tulsa and is a member of Big XII Conference.
Bonds to be refunded:
-- Board of Regents of the University of Oklahoma
-- Multiple Facility Revenue Bonds, Series 1998
-- Athletic Facilities Revenue Bonds, Series 2001
-- Student Usage Facilities Revenue Bonds, Series 2001
-- Athletic Facilities Revenue Bonds, Series 2002A
-- Oklahoma Development Finance Authority Public Facilities Program Revenue Bonds (University of Oklahoma) Series A, 2000
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.