Fitch Ratings has affirmed the 'BBB' rating on the following outstanding bonds issued on behalf of Suffolk University (Suffolk):
--$66.285 million tax-exempt Massachusetts Development Finance Authority revenue bonds, series 2010;
--$274.975 million tax-exempt Massachusetts Health and Educational Facilities Authority (MHEFA) revenue refunding bonds, series A (2009);
--$17.51 million taxable MHEFA revenue refunding bonds, series B (2009, federally taxable).
The Rating Outlook is Stable.
The bonds are a general obligation of the university, secured by a mortgage on certain properties. The series A & B (2009 bonds) are secured by a cash-funded debt service reserve.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'BBB' rating reflects Suffolk's consistently positive operating performance, resulting in net income available for debt service that provides adequate coverage of maximum annual debt service (MADS). Counterbalancing factors include a lack of revenue diversity and a very high debt burden.
HEAVY RELIANCE ON STUDENT-GENERATED REVENUES: Student-generated revenues provide nearly all of the Suffolk's annual operating revenues, underscoring the need for carefully managed enrollment, particularly given the highly competitive operating environment in New England.
HIGHLY LEVERAGED FINANCIAL POSITION: MADS ($28.9 million due in 2038) is very high compared to annual operating expenses. The budgetary certainty provided by the 100% fixed rate structure of outstanding debt combined with the university's historical ability to generate adequate MADS coverage from operations somewhat mitigates this concern.
CONSERVATIVE, PROACTIVE MANAGEMENT TEAM: Suffolk's management team continues to follow conservative budgeting practices and take proactive steps to improve financial monitoring and reporting capabilities, which Fitch views positively given its limited operating flexibility.
Suffolk's overall credit profile is underpinned by a history of soundly positive operating margins. In the past five fiscal years (2007 - 2011), surpluses averaged 5.2%, and unaudited results for fiscal year 2012 indicate a 4.2% surplus. Student generated revenues, primarily net tuition revenues, provide the basis for the university's operations. In fiscal 2012, student-generated revenues provided an estimated 95% of total operating revenues, a level consistent with historical averages. Fitch notes that the university has historically demonstrated strength in managing this key revenue stream, as net tuition and fees have grown by an average of 6.5% from fiscal year 2007 to fiscal year 2011.
Fitch views this reliance as a challenge for the university, particularly given the highly competitive operating environment in the New England area which is densely populated with private colleges and universities. However, Suffolk's prudent budgeting strategy has historically provided sufficient flexibility to manage slight fluctuations in enrollment while maintaining or increasing net tuition and fees. During fiscal 2012, the university upgraded its financial processes to allow for better monitoring and reporting of the budget. Fitch views these improvements positively, as they enhance the university's ability to recognize and respond to budget variances more quickly.
The university's operational health also provides an offset for the MADS burden, which Fitch views as high at 12.2% of unaudited fiscal 2012 revenues. Net income available for debt service provided an adequate 1.5x MADS coverage in fiscal 2012, which somewhat mitigates concern regarding the university's ability to meet its obligations. The ongoing ability to demonstrate debt service coverage from operations is particularly important given the limited financial cushion provided by Suffolk's balance sheet resources.
Available funds, defined by Fitch as cash and investments not permanently restricted, are projected to reach $166.9 million at the close of fiscal 2012. However, available funds represent just 46.5% of total outstanding debt, which Fitch considers somewhat weak for the rating level. Compared to operating expenses, available funds provide a healthier 73.4% cushion. Furthermore, continued generation of operating surpluses combined with a lack of additional debt plans should allow the university to build the available funds cushion to a more solid level over time.
Suffolk is located in the heart of downtown Boston, Massachusetts and serves a diverse mix of undergraduate and graduate students. Originally founded in 1906 as a stand-alone law school, the university's programming has expanded to include a college of arts and sciences (CAS) and the Sawyer business school. Both schools provide undergraduate and graduate education. The law school continues to be the largest graduate college at Suffolk. The university also maintains an international campus in Spain.
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', dated June 12, 2012;
--'U.S. College and University Rating Criteria', dated May 25, 2012;
--'Fitch Affirms Suffolk University (MA) at 'BBB'; Outlook Stable', dated Sept. 23, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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