Fitch Ratings has assigned an 'AA-' rating to approximately $10.3 million of revenue financing system (RFS) refunding bonds issued by the Texas Public Finance Authority on behalf of Midwestern State University (MSU).
The series 2012 bonds are expected to price via negotiated sale on or about the week of September 17th. Proceeds of the fixed-rate bonds will fully refund the outstanding series 2002 RFS bonds and the outstanding series 2003 RFS bonds, and pay certain costs of issuance.
In addition, Fitch affirms the underlying 'AA-'rating on approximately $80.1 million of outstanding RFS bonds.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by pledged revenues which include
all legally available funds of the university, including unrestricted
fund and reserve balances. Pledged revenues exclude state
appropriations, gifts, grants, and auxiliary student service fees.
KEY RATING DRIVERS
SOUND FINANCIAL PROFILE: The 'AA-' rating primarily reflects MSU's sound financial profile, as demonstrated through generally break-even to positive operating results and an adequate level of balance sheet resources. Counterbalancing factors include a high, but manageable debt burden, and susceptibility to further reductions in state funding (Texas' GO bonds are rated 'AAA' by Fitch).
RESPONSIVE FISCAL MANAGEMENT: The management team's implementation of timely budgetary measures to absorb state funding reductions has positioned MSU to continue generating satisfactory operating results.
GENERALLY STABLE ENROLLMENT: Total headcount enrollment has been generally upward trending in recent years. Preliminary fall 2012 data suggest stabilization in enrollment after a moderate dip in fall 2011. Senior leadership is proactively undertaking new enrollment management strategies to both stabilize and ultimately boost future headcount.
MANAGEABLE LEVERAGE: Partially offsetting the concern about the university's high debt burden is its ability to cover annual carrying charges from operations. Management has indicated that future debt-supported capital projects will be delayed until they are financially feasible.
CREDIT PROFILE
RESPONSIVE FISCAL MANAGEMENT
Ten months of unaudited fiscal 2012
operating results indicate that management continues to effectively
navigate a pressured state funding environment. The combination of
restrained discretionary expenses, maintenance of position vacancies,
and a roughly 3% increase in tuition/fees and housing charges is
expected to support at or near break-even operating results for fiscal
2012. Fitch believes that similar budgetary actions embedded in the
fiscal 2013 budget should bode well for operating stability in the
upcoming fiscal year.
MAINTENANCE OF SATISFACTORY FINANCIAL CUSHION
Generally break-even
to positive operating performance has allowed MSU to maintain a sound
balance sheet cushion. In fiscal 2011, available funds (cash and
investments minus non-expendable net assets and expendable net assets
reserved for capital projects) totaled $49.3 million. This covered
fiscal 2011 operating expenses and pro forma debt by an adequate 56.2%
and 55.9%, respectively. Both metrics are in line with other public
colleges and universities rated in the 'AA' category by Fitch. Based on
interim investment results, Fitch anticipates available funds ratios
will remain relatively stable at the end of fiscal 2012.
GENERALLY STABLE ENROLLMENT
Preliminary fall 2012 data suggest that
enrollment is stabilizing, with management reporting that it is on track
to meet its budgetary headcount goal of 6,181. This follows a modest
3.8% decrease in total headcount enrollment in fall 2011, partly driven
by the implementation of more stringent academic standards for incoming
students to support improved student outcomes.
Importantly, senior leadership is actively undertaking new enrollment management strategies to bolster future headcount stability. These include working with a consultant to enhance recruitment strategies, modest growth in financial aid, and developing new formal transfer partnerships with two nearby community colleges. Fitch will actively monitor the impact of these initiatives on MSU's financial and demand profile.
MANAGEABLE LEVERAGE
Following the issuance of the series 2012
bonds, leverage will remain high, but manageable. Maximum annual debt
service (MADS) of $8.76 million due in fiscal 2014 (inclusive of
constitutional appropriation and tuition revenue bonds) will consume
10.0% of fiscal 2011 unrestricted operating revenues. Partly offsetting
the magnitude of this burden is MSU's ability to generate satisfactory
economic MADS coverage from operations (1.5 times based on fiscal 2011
operating performance).
Management is considering up to $48 million in additional bonds related to two non-critical capital projects. The university's plans to fund extensive renovations to the Moffet Library are contingent upon approval of $30 million in TRBs in the 2013 state legislative session. In the event the TRBs are not approved, MSU will defer or delay the project until funding becomes available. The remaining $18 million is associated with a possible new student housing project, which is on hold until deemed economically viable.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported
Rating Criteria' (June 12, 2012);
--'U.S. College and University
Rating Criteria' (May 25, 2012);
--'Fitch Affirms Midwestern State
University Rev Bonds at 'AA-'; Outlook Stable' (March 12, 2012);
--'2011
Median Ratios for U.S. Public Colleges and Universities' (May 8, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
U.S.
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679152
2011
Median Ratios for U.S. Public Colleges and Universities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678234
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