|[May 16, 2013]
Fitch Rates Texas A&M Univ System Rev Financing System Bonds 'AA+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings assigns an 'AA+' rating to $40.065 million revenue
financing system (RFS) bonds, series 2013 A and $255.6 million RFS
bonds, series 2013 B issued by the Texas A&M University System (TAMUS or
In addition, Fitch affirms the following ratings:
--$1.425 billion fixed-rate RFS bonds at 'AA+';
--$300 million (maximum authorization) RFS tax-exempt commercial paper
program at 'F1+'.
A competitive sale is expected on or about the week of May 20, 2013.
Proceeds from the series 2013 A bonds will refund certain maturities of
outstanding RFS debt, while proceeds of the series 2013 B bonds will
refund certain maturities of outstanding RFS debt and $267.8 million of
outstanding commercial paper (CP) notes in addition to paying costs of
The Rating Outlook is Stable.
RFS debt is secured by a lien and pledge of all legally available
revenues and fund balances of the system.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA+' rating reflects TAMUS's
consistently positive operating results, bolstered by diverse revenue
streams and adequate balance sheet flexibility.
MANAGEABLE DEBT BURDEN: The conservative, rapidly amortizing debt
structure provides capacity for additional debt issuance to support the
system's capital improvement plans, including a $450 million football
stadium renovation that is expected to be partially funded with RFS
debt. Certain revenues associated with the project further support its
POSITIVE ENROLLMENT TRENDS: Continued growth in both undergraduate and
graduate enrollment underpins the strength of student-generated
revenues, which is the largest contributor to annual revenues.
SUFFICIENT LIQUID RESOURCES: The 'F1+' rating is based on TAMUS's
ability to cover the maximum potential liquidity demands presented by
its tax-exempt, RFS CP program by at least 1.25x from internal resources.
CHANGES TO FINANCIAL RESOURCE BASE: The system's rating is primarily
linked to material changes, either positive or negative, in the
financial resource base which provides a cushion for the additional RFS
debt issuances currently planned.
MATERIAL DECLINE IN LIQUID INVESTMENTS: The 'F1+' rating could be
pressured by a decline in liquid investments available such that
coverage of the outstanding variable-rate demand bonds falls below the
1.25x minimum required.
TAMUS consists of 11 academic institutions, seven research and service
agencies, and a health sciences center. Since fall 2008, total headcount
increased at an average annual rate of 3.5% reaching 125,425 in fall
2012. The flagship campus is located in College Station, Texas.
DIVERSIFIED REVENUE BASE SUPPORTS OPERATIONS
TAMUS benefits from a diversified revenue base, with three primary
streams contributing approximately equally to fund annual operations. In
fiscal 2012, student-generated revenues provided 27.2% of total annual
revenues, surpassing state appropriations (26.7%) for the first time in
the system's history. Grant and contract revenues contributed slightly
less, providing an additional 24.8% of the system's budget.
Fitch views the system's revenue diversity favorably, as the impact of
pressures on any one revenue stream is mitigated. Modest anticipated
enrollment growth and differential tuition increases in certain
high-demand programs are expected to continue to grow student-generated
revenues in the near term This is viewed particularly favorably given
the potential impact of sequestration on federal research funding and
continued pressures in higher education funding at the state level.
TAMUS's operations have been historically positive, consistent with
Fitch's expectations for a public college or university. Averaging 3.8%
over the last five fiscal years, including a strong 5.3% surplus in
fiscal 2012, the system's management has demonstrated its ability to
manage softening economic conditions. The history of surplus generation
is viewed favorably by Fitch, as it provides the system with operational
flexibility to manage natural fluctuations in revenues and expenses over
GROWING BALANCE SHEET
In addition to providing financial flexibility, annual surpluses have
contributed to material growth in the system's balance sheet cushion in
recent years. Available funds grew by 21.7% since 2008, reaching $2.85
billion in fiscal 2012. As a percentage of operating expenses ($3.6
billion) and pro-forma outstanding RFS debt ($1.8 billion), this
represents a solid cushion of 78.4% and 159.3%, respectively.
The system maintains a portion of its financial resources in support of
its RFS CP program, which has a maximum authorization of $300 million.
As of March 31, 2013, the system's total resources designated for this
purpose totaled $2.5 billion. Total available resources, which reflect
discounting to adjust for credit quality and duration of assets per
Fitch's criteria, totaled a slightly lower $1 billion. The discounted
level still provides ample 3.4x coverage of the maximum authorization,
well in excess of the 1.25x coverage expected to achieve the 'F1+'
ADDITIONAL DEBT MANAGEABLE
The planned debt issuance does not materially impact TAMUS's debt
burden. The system maintains a conservatively structured debt portfolio,
with 100% fixed-rate debt with a significantly front-loaded debt burden.
Pro-forma maximum annual debt service (MADS) on RFS debt totals $177.2
million, due in fiscal 2014. In fiscal 2012, this represented a moderate
4.6% of total annual revenues, with net income from operations provided
sound 3.1x coverage.
The system does maintain a long-term capital improvement plan extending
to 2017 which includes additional debt issuance through the RFS program
as well as the permanent university fund (PUF), which is separately
secured. Total new RFS debt is currently estimated at $700 million, with
up to $350 million toward the renovation of the football stadium in
College Station to be added. Management has approached the stadium debt
conservatively, approving a $36/semester student fee to supplement
student ticket revenues and seat licensing revenues to offset associated
debt service costs.
Fitch views this approach favorably, as it should mitigate the increase
in debt burden associated with the sizeable project. Further, the
existing front-loaded structure should provide capacity to take on
additional debt over the next few years. Pro-forma average annual debt
service currently totals $82.8 million, less than half of MADS.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'Revenue Supported Rating Criteria', dated June 12, 2012
'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity',
dated June 15, 2012
'U.S. College and University Rating Criteria', dated May 10, 2013
Applicable Criteria and Related Research
U.S. College and University Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
Revenue-Supported Rating Criteria
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