Fitch Ratings assigns an 'AA' rating to the following series of bonds issued by the Board of Regents of the University of North Texas System (UNT, or the system):
--$39.6 million revenue financing system (RFS) refunding bonds, series 2010.
The bonds are expected to price via negotiated sale the week of July 26, 2010. Bond proceeds will be used to refund portions of the system's outstanding series 2001, 2002, and 2002A RFS bonds and to pay various costs of issuance.
In addition, Fitch affirms the following ratings on UNT's debt portfolio:
--$423.3 million of outstanding RFS bonds at 'AA';
--$100 million commercial paper (CP) program at 'F1+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--UNT benefits from solid student demand, aided by favorable market demographics and its location in a growing region of the state (Dallas-Fort Worth).
--Steady, moderate enrollment growth over the past several years has enabled UNT to generate consistently positive operating margins.
--Historically strong financial support from the state for general operations and capital purposes, albeit at currently reduced levels, provide further support for the rating (State of Texas general obligation bonds rated 'AAA' by Fitch).
--UNT's plans to expand the system and grow enrollment continue to pose potential operational and financial challenges; however, an experienced management team, careful strategic planning, and historically strong state and city support partially mitigate this risk.
KEY RATING DRIVERS:
--Maintenance of stable student demand across all system campuses;
--Prudent implementation of capital expansion plans while maintaining liquidity and operating performance at or near current levels.
SECURITY:
The series 2010 bonds rank on parity with outstanding RFS bonds and CP notes and are secured by pledged revenues which include all legally available revenues, funds, and balances of the system. Pledged revenues exclude state appropriated funds and other restricted funds.
CREDIT SUMMARY:
The 'AA' rating primarily reflects the system's stable student demand and steady enrollment growth; long track record of positive operations; and historically strong state support for both general and capital purposes. Primary credit concerns include the system's aggressive capital expansion plans, limited fundraising history, and competitive operating environment. The potential financial and operational complexities involved with the system's continued capital expansion, including the Dallas campus and new law school, are partially mitigated by the system's experienced management team, careful strategic planning, and state and local support. While aggressive, Fitch does not presently expect the expansion plans to materially erode UNT's historically sound financial profile.
The system has a long track record of positive operations, with an average operating margin of 8.7% over the past five fiscal years and a margin of 7.4% in fiscal 2009. Positive operations have been driven in part by enrollment growth and tuition increases. State appropriations and student-generated revenues represent the system's two largest funding sources, each accounting for about 34% of revenues in fiscal 2009. UNT received a total of $253.4 million in appropriations in fiscal 2009, up 6% from fiscal 2008. As a result of revenue shortfalls experienced by the state, appropriations to the system were reduced 5% for fiscal 2010, with a further 5% cut expected for fiscal 2011 and the possibility of further cuts going forward due to the state's projected budgetary gaps. The system has been able to largely offset the funding cuts through tuition and fee increases and a salary and modified hiring freeze.
The system has adequate balance sheet liquidity. Fiscal 2009 available funds of $321.8 million covered operating expenses ($680.2 million) by 47.3% and pro forma debt ($426.8 million) by 75.4%. Available funds have increased about 28% from fiscal years 2005 to 2009. As its capital plans progress, Fitch expects the system's available resources to grow commensurate with the level of debt incurred. Maximum annual debt service of approximately $37.9 million represents a moderate, though manageable 5.2% of fiscal 2009 operating revenues. Approximately $190 million (45%) of the system's outstanding debt constitutes TRBs.
The short-term 'F1+' rating is based on the system's own internal liquidity, primarily supported by its significant level of highly rated, highly liquid investments. The most liquid of the system's investments are held in the state's money market fund, TexPool. As of May 31, 2010, the system had $247.3 million invested in TexPool. The system has an internal policy which requires it to maintain a minimum TexPool balance equaling 1.2 times (x) the amount of CP notes outstanding. As of May 31, 2010, the system's TexPool funds covered the total authorized CP limit of $100 million by a solid 2.47x, exceeding the minimum 1.25x coverage Fitch generally expects for an 'F1+' rating. The system currently has only $3.5 million of CP notes outstanding.
The system was established in 1890 and consists of four units: University of North Texas (UNT), UNT Health Science Center, UNT-Dallas, and UNT System Administration. Located in Denton, Texas, UNT is the system's flagship, and with a headcount of over 34,000 students is the fourth largest university in the state.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:
'Revenue-Supported Rating Criteria' (Dec. 29, 2009);
'College and University Rating Criteria' (Dec. 29, 2009);
'Criteria for Assigning Short Term Ratings Based on Internal Liquidity (Dec. 29, 2009).
Additional information is available at 'www.fitchratings.com'.
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Colin Walsh, 212-908-0767
Douglas J.
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or
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