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| [January 20, 2012] |
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Fitch Affirms Univ of Redlands, CA's Revs at 'BBB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the 'BBB' rating on $75.5 million California
Educational Facilities Authority revenue bonds issued on behalf of
University of Redlands (UR).
The Rating Outlook is Stable.
SECURITY
The bonds are an unsecured general obligation of UR.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'BBB' rating reflects the
university's improved, though still negative, GAAP operating margin;
positive enrollment trends; and a still modest balance sheet cushion.
FINANCIAL STABILIZATION PLAN ON (News - Alert) TRACK: UR is in the second year of a
four-year strategic financial plan. Through continued careful expense
management in fiscal 2011, the operating margin improved closer to
breakeven for the second consecutive year.
ENROLLMENT GROWTH SHOULD BOLSTER OPERATIONS: In Fall 2011, the
university's full-time equivalents (FTEs) grew in line with UR's
strategic financial plan and operating budget. Fitch expects this will
lead to continued gradual improvement in UR's operating margin for
fiscal 2012.
IMPROVING, BUT LIMITED, FINANCIAL CUSHION: The university grew its
available funds in fiscal 2011 due to its cash basis surplus and market
gains. Coverage of operating expenses and debt remains adequate for the
'BBB' rating category.
WHAT COULD TRIGGER A RATING ACTION
CONTINUED IMPROVEMENT IN FINANCIAL PROFILE: Continued achievement of
strategic financial plan targets resulting in enhanced credit stability
through a breakeven to positive operating margin and growth in available
funds.
CREDIT PROFILE
In fiscal 2011, UR's operating margin reached negative 3.1%. While still
negative, this was the second consecutive year of improvement. The
university also continues to generate a cash-basis surplus as net income
from operations provided adequate coverage of 2.1 times (x) average
annual debt service (AADS). AADS coverage and the moderate debt burden
(5%) are in line with other private colleges and universities rated in
the 'BBB' category by Fitch.
The university's leadership remains committed to a multi-year strategic
financial plan, which includes expense reduction and enrollment targets.
Annual operating budgets reflect these goals. Robust growth of 5% in
fall 2011 FTE (excluding students in the new school of continuing
studies) was generally in line with the targets (UR revised its
reporting methodology for FTEs, and provided Fitch with historical data
back through fall 2008 for comparative purposes).
Increased enrollment at the college of arts and sciences (CAS) and the
school of business offset continued declines at the school of education.
The education school (representing 11% of the university's fall 2011
FTEs) continues to suffer from pressured school district funding in
California, which dampens demand in the teaching profession.
Importantly, management appears to have adjusted its annual budgetary
expectations to be line with actual enrollment.
During fiscal 2011, UR's available funds increased 33.7% to $40.6
million, providing moderate coverage of operating expenses (37.6%) and
total debt (46.5%). These levels are within the range of other 'BBB'
category private colleges and universities.
Upward rating movement will be contingent upon UR's ability to achieve a
breakeven to positive GAAP margin by fiscal 2014, and continued
improvement in the balance sheet cushion. The continued implementation
of the university's strategic financial plan should contribute to the
achievement of these conditions. Given the importance of
student-generated revenues (85.4% in fiscal 2011), continued careful
enrollment management will be key to achieving these targets.
Originally founded in 1907 by members of the American Baptist Church, UR
is a non-sectarian private university. In addition to its main campus in
Redlands, California, the university also maintains seven satellite
locations used by the school of business, the school of education, and
the new school of continuing studies.
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 20, 2011;
--'U.S. College and University Rating Criteria', dated July 14, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
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