NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA-' rating to $55 million New Jersey Educational Facilities Authority (NJEFA, or the issuer) revenue bonds, series 2012C and D issued on behalf of William Paterson University (WPU). The series 2012 C and 2012 D bonds are expected to be sold via negotiation on or about the week of Oct. 15th. The proceeds of the bonds will be used to finance the construction of a parking garage and other supporting structures on campus, refund outstanding debt, and pay costs of issuance.
In addition, Fitch affirms approximately $160 million of outstanding NJEFA revenue bonds issued on behalf of the university at 'AA-'.
The Rating Outlook is Stable.
The bonds are a general obligation of the university, payable from all legally available funds.
KEY RATING DRIVERS
STABLE OPERATING CHARACTERISTICS: WPU's 'AA-' rating reflects stable operating performance, characterized by consistently positive operating margins, growth in liquidity, and adequate coverage of pro-forma debt service. Certainty in the university's operations is offset by short-term enrollment stresses and declining state funding levels.
DEVELOPING ENROLLMENT STRATEGY: Headcount fell slightly in fall of 2012 as degrees granted in 2011-2012 increased substantially and a continued effort to improve student quality softened freshmen matriculation. Management's focus on recruitment and retention is expected to improve demand over the intermediate term.
HIGH DEBT BURDEN: The university's debt burden is relatively high but manageable, since project revenues partially support the related obligation and there are no additional near-term debt plans.
The university's consistently positive operating margin is a key credit strength. Unaudited 2012 operating results indicate an operating margin of 3.2%, narrowing from 5.3% in fiscal 2011. Operating revenues grew 3.8% as a result of tuition and fee increases and growth in undergraduate FTEs but were offset by expenditures for student aid and related services. WPU, in addition, experienced a further reduction in state support for fiscal 2012, the fourth consecutive year of funding cuts. However, management still maintains a positive margin despite these variances through measured expense controls and regular revenue increases in the form of fees and charges. The university's ability to operate profitably through declining state funding environments is a credit positive.
Headcount declined by 0.8% to 11,423, in fall of 2012, from 11,518 in fall 2011. This was partly the result of reducing the credit requirement for graduation from 128 credits to 120, starting in 2012, which is in line with other in-state public universities. For the 2011-2012 academic year, WPU granted 436 more degrees (2,296) than its past four-year average of 1,860. The drop also reflects a two-year decline in freshmen matriculations (2011-2012) driven by more stringent acceptance standards in WPU's initiative to improve student quality.
Freshman class growth slowed, with 1,232 students matriculating in fall 2012, down from 1,393 in fall of 2011. Offsetting this decline were transfer student counts, recruited via articulation agreements with community colleges, which increased from 1,030 in fall of 2009 to 1,367 in fall of 2012. WPU expects to improve application volumes for fall 2013 by adopting the common application process and refocusing the use of financial aid and merit scholarships. Fitch will monitor the success of these initiatives as they are implemented.
Available funds, defined as cash and investments, less restricted net assets, has grown consistently over time. Consecutive and recurring annual operating surpluses and a conservative debt policy which constrains debt-related interest expense growth have enabled the university to incrementally build its unrestricted liquidity. Available funds totaled $98 million in fiscal 2011, up from $62.6 million in fiscal 2009, and increased to $106 million as per unaudited 2012 statements. WPU's liquidity measures are similar to fiscal 2011 with available funds comprising 50.1% of operating expenses and 56.2% of pro forma long-term debt. Fitch notes this growth in balance sheet resources favorably as it partially offsets the $22 million in new money debt issuance.
Total debt outstanding for the university post issuance will be approximately $190 million. Aggregate debt amortization is front-loaded, and level through 2027, when the advance refunding series 2012D bonds mature, and declines thereafter. Net income available from 2011 and 2012 operations covers pro forma maximum annual debt service (MADS) of $15.1 million by 2.0x and 1.8x, respectively. The debt burden (debt service as a percent of operating revenues) was modestly high at 7.6% but declined to 7.1% for 2012; pro forma MADS burden is lower at 6.9%. The university does not have any other near-term debt issuance plans.
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'. 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. University and University Rating Criteria', May 24, 2012;
'Fitch Affirms William Paterson University (NJ) Revs at 'AA-'; Outlook Stable, Oct. 29, 2010.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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Source: Fitch Ratings