Fitch Ratings affirms the 'AA-' rating to the following New Jersey Educational Facilities Authority (NJEFA, or the issuer), NJ revenue bonds issued on behalf of William Paterson University (WPU, or the university):
--$173 million NJEFA revenue bonds (William Paterson University issues).
The Rating Outlook is Stable.
RATING RATIONALE:
-- WPU's multi-year track record of a positive operating margin and adequate liquidity, especially when compared with its public university counterparts within its home state of New Jersey, anchors the 'AA-' rating.
-- A strong rebound in enrollment following several weak years reflects a concerted management focus, and the university's solid competitive position in a crowded northern New Jersey marketplace.
-- While historically the use of fees for capital projects pushed WPU's cost of attendance above its peers state public universities, in recent years the university regained pricing flexibility by moderating its increases in student charges and is now slightly below the average for its peers.
KEY RATING DRIVERS:
-- Maintenance of positive operating margins and balance sheet liquidity.
-- Successful and timely completion of the final phase of the science hall capital project.
SECURITY:
The bonds are essentially secured by a general obligation of the university, payable from legally available funds.
CREDIT SUMMARY:
WPU's stable and sound positive operating margin is the university's most essential credit characteristic. Importantly, management has demonstrated an ability to maintain that margin through various challenging scenarios, particularly through a period of significant fluctuation in state appropriations (including operating funds and funds for employee fringe benefits). Between fiscal 2005 and 2009, state appropriations increased as much as 6.2% (between 2007 and 2008) and declined as much as 5.4% (between 2008 and 2009). In fiscal 2010, appropriations declined a further 3.2%, and another sharp drop was budgeted by the state for the current year.
Operating surpluses also continued through a period of enrollment losses, that WPU has now turned around. Between fiscal 2005 and 2009 (fall 2004 and fall 2008), headcount dropped over 10% as the university felt the impact of a major construction project disrupting campus life and aesthetics. In fiscal 2010 and 2011 though, with the project fully opened, enrollment rebounded strongly and WPU has essentially regained its lost ground with headcount of 11,361 this fall. The management team focused on growing its base of undergraduate applications (particularly for freshmen, but also for transfers), and pushing those applications to completed status. As applications increased, the university also improved its selectivity and still managed to grow its incoming freshman classes substantially. This year's entering class of 1,535 was 9.1% higher than the fiscal 2005 entering class. The university is entering the second and final phase of a major capital project, the renovation of the existing portion of its science hall (an addition to the building was successfully opened this fall). Fitch will closely monitor enrollment to ensure continued stability through the construction period. To date, the university reports construction is on-time and slightly ahead of budget.
Liquidity also improved through these periods of financial and operating challenges, further reflecting management's ability to closely monitor and adjust spending and revenue generation. Since fiscal 2007 (the latest year included in Fitch's last published review of WPU), available funds (cash and investments that are not restricted and expendable for debt service reserves) increased to $62.6 million from $45 million. Coverage of 2009 operating expenses was 35.3%, and coverage of total debt was 34.2%. Coverage of operating expenses (35.3% in 2009) was in line with other 'AA-' credits rated by Fitch, but coverage of total debt (34.2% in 2009) was somewhat weaker than other schools in the 'AA' category. Unlike in many other states, New Jersey has not been a consistent provider of capital funds for its public universities, leading those institutions to issue greater amounts of debt to fund essential projects.
Founded in 1855 as a training school for teachers, today William Paterson is a comprehensive regional university offering primarily undergraduate and graduate programs across five colleges, including business, education, and health sciences. The university is located on a suburban campus approximately 20 miles northwest of New York City, in Wayne Township, Passaic County, NJ.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Oct. 8 2010;
--'College and University Rating Criteria', dated Dec. 29, 2009.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493170
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