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Fitch Rates Miami University (OH) Revs 'AA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA' rating to approximately $121.7 million of Miami University (MU) general receipts revenue bonds, series 2012.

The fixed rate series 2012 bonds are expected to price via negotiated sale on or about the week of Oct. 22. Proceeds will be used to fund various infrastructure improvements, residence hall and dining facility renovations, and costs associated with the issuance of the bonds.

In addition, Fitch affirms the 'AA' rating on $230.8 million MU general receipts revenue and refunding bonds, $91.26 million MU general receipts revenue bonds and $105.445 MU federally taxable general receipts revenue bonds designated as Direct Payment Build America Bonds.

The Rating Outlook is Stable.

SECURITY

General receipts revenue bonds are secured by a pledge of the university's general receipts, which are primarily comprised of tuition and fees, net auxiliary revenues, revenues from educational activities, unrestricted gifts, and investment income.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA' rating continues to reflect Miami University's consistently positive operations, sound balance sheet resource cushion, and stable enrollment profile featuring above-average student quality.

RELIANCE ON STUDENT-GENERATED REVENUES: Due to the state's limited support of higher education, MU is heavily reliant on tuition and fee revenues to balance its operating budget, despite its mission to provide an affordable educational option to Ohio residents.

ACTIVE, ENGAGED LEADERSHIP: The university's management team takes a proactive approach to addressing the challenges that face the university, as demonstrated by its successful turnaround of the previous track-record of deficit operations.

GROWING DEBT BURDEN: Though the issuance of the series 2012 bonds will increase MU's debt burden, the university's decision to structure its debt prudently and ability to generate adequate coverage of the annual obligations from operations are viewed as somewhat mitigating this concern.

CREDIT PROFILE

MU's financial and operational profiles have exhibited stability since Fitch's last review. Unaudited results for fiscal 2012 indicate a third consecutive year of solidly positive results. Fitch views this favorably, as it solidifies the sustainability of the operational turnaround that has been underway since fiscal 2010. Management continues to be actively engaged in strategic planning to ensure that the university is able to provide a low-cost educational option with high-quality academic outcomes going forward.

The university's ability to maintain balanced operations is also highly contingent upon stability in its primary revenue stream - student-generated revenues. These revenues have historically provided 70.8% of annual operating revenues (fiscal 2008-fiscal 2012). While this lack of revenue diversity is somewhat anomalous among public universities, the state of Ohio's low and diminishing support for public higher education has resulted in a higher than average reliance on student-generated revenues at all public institutions state-wide.

MU's enrollment, which underpins student-generated revenues, is expected to be largely stable in fall 2012. Certain intentional programmatic reductions and enrollment caps resulted in a slight decline in total enrollment (-2.7% on a headcount basis) for fall 2012. However, the incoming class of first-time students is the largest in the last five enrollment cycles at 3,716. This stability is viewed positively by Fitch, as fall 2012 enrollment levels form the basis of the fiscal 2013 budget.

Since the university's operations have been self-sustaining over the last three fiscal years (fiscal 2010-fiscal 2012), its balance sheet has posted solid gains, and provides a healthy financial cushion against the university's financial obligations. Net of unspent bond proceeds, available funds (defined by Fitch as cash and investments not permanently restricted) grew by 14.9%, to $361.6 million in fiscal 2012. As compared to fiscal 2012 operating expenses ($524.5 million) and total pro forma debt ($565.9 million, which includes bonds, notes, capital leases and unamortized bond premium), available funds represent a solid 68.9% and 63.9%, respectively.

Fitch continues to view the associated burden as manageable despite recent increase in 2010, 2011 and 2012 (proposed). Pro forma maximum annual debt service (MADS) is estimated to reach $45.4 million (due in fiscal 2015), and will represent 8.3% of fiscal 2011 operating revenues. While this level is somewhat high, Fitch notes that the university's decision to utilize a conservative debt structure, amortizing bond series in 20-25 years rather than the standard 30 years, is the primary driver of the higher than average burden. Income from operations provides 1.7x coverage of pro forma MADS. Though somewhat lower than similarly rated public institutions, Fitch views this level of coverage as adequate given MU's overall level of financial flexibility.

MU was established in 1809 and commenced its liberal arts-based instruction in 1824, making it the second oldest public university in the state of Ohio. The university's well-maintained main campus is located in Oxford, OH, approximately 35 miles north of Cincinnati. The university also maintains two regional campuses in Hamilton and Middletown, OH, a learning center in West Chester, OH, and a European campus in Luxembourg.

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.

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

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Fitch Ratings
Primary Analyst
Angela Guerrero, +1-212-908-0259
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan, +1-212-908-0723
Director
or
Committee Chairperson
Marcy Block, +1-212-908-0239
Senior Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings

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