|[August 27, 2013]
Fitch Rates Mississippi State University Educ Bldg Corp Revs 'AA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings assigns an 'AA' rating to the approximately $80.2 million
of revenue bonds, series 2013, issued by the Mississippi State
University (MSU) Educational Building Corporation (EBC).
At the same time, Fitch affirms the following:
-- Approximately $179.6 million in outstanding MSU EBC bonds at 'AA';
-- Approximately $134.4 million in outstanding University of Mississippi
EBC bonds at 'AA';
-- Approximately $51.9 million in outstanding S.M. (Southern
Mississippi) EBC bonds at 'AA';
-- $50 million taxable and tax-exempt commercial paper (CP) program
issued by MSU EBC at 'F1+'.
A negotiated sale is expected on or about the week of September 9. The
proceeds of the bonds will be used to fund the construction of
Davis-Wade Stadium, advance refund outstanding series 2004 bonds, fund
capitalized interest, and pay the cost of issuance.
The Rating Outlook is Stable.
EBC bonds are secured by designated revenues generated by the eight
academic institutions that the Institutions of Higher Learning (IHL)
represents. Designated revenues include net tuition, fees, and auxiliary
enterprises; sales and services; other operating revenues; state
appropriations; and unrestricted net assets.
KEY RATING DRIVERS
SOUND FINANCIAL OPERATIONS: The 'AA' rating primarily reflects IHL's
sound financial profile, evidenced by the consistent generation of at
least break-even operating performance on a GAAP-basis, a satisfactory
level of unencumbered resources relative to operating expenses and
long-term debt, and a diverse revenue base.
INTEGRAL ROLE IN STATE HIGHER EDUCATION: IHL benefits from its integral
role in furthering the state's education, research, and healthcare
goals, leading to a dominant market position that bolsters healthy
enrollment trends and financial support from the state (Mississippi
rated 'AA+' with a Stable Outlook by Fitch) in the form of operating and
MANAGEABLE DEBT BURDEN: While ongoing capital needs to support the
infrastructure of member institutions results in periodic debt issuance,
Fitch notes positively that the system's aggregate pro-forma maximum
annual debt service (MADS) consumes a relatively low portion of
unrestricted annual operating revenues and is regularly covered at least
2x from net operating income.
SUFFICIENT LIQUID RESOURCES: The 'F1+' rating is based on IHL's ability
to cover the maximum potential liquidity requirement associated with
MSU's CP program by a minimum of 1.25x. Further comfort is provided by
MSU's access to internal, highly liquid resources, which covered the
maximum authorization by a sound 2.19x (based on data from July 31,
DETERIORATION OF FINANCIAL PROFILE: To the extent that the system
consistently generates negative operating performance, which is not
anticipated at the present time, debt service coverage and unencumbered
financial resources could be adversely affected and yield downward
MATERIAL DECLINE IN LIQUID INVESTMENTS: The 'F1+' rating could be
negatively affected by a decline in available resources to a level that
resulted in less than the minimum 1.25x coverage required under Fitch's
Criteria for Assigning Short-Term Ratings Based on Self-Liquidity.
Founded in 1944, the IHL represents the state's eight academic
institutions: University of Mississippi (UM), Alcorn State University,
Delta State University, Jackson State University, Mississippi State
University, Mississippi University for Women, Mississippi Valley State
University, and University of Southern Mississippi. It also includes the
University of Mississippi Medical Center (UMMC), which is part of UM.
Headcount enrollment at IHL member institutions totaled 81,022 for the
fall 2012 academic term, or 0.6% over fall 2011 and 13.8% above fall
2008 levels. As a percentage of total headcount enrollment, MSU is
typically the second largest institution in the system, regularly
accounting for approximately one-fourth of IHL's enrollment base.
SOUND FINANCIAL OPERATIONS
The 'AA' rating continues to partially reflect the sound financial
performance of IHL academic institutions and UMMC on an aggregate basis.
Despite a pressured state-funding environment in recent years, IHL has
consistently generated at least break-even operating performance on a
GAAP basis, averaging .4% over the past five years, including 0.8% in
fiscal 2012. Based on unaudited third-quarter aggregate results,
management indicated that system-wide operating performance in fiscal
2013 is expected to be comparable with the prior year. An increase in
state appropriations for the 2014-15 biennium (fiscal years 2014 and
2015), which exceeded management's original estimations when seeking
tuition rate approval, bodes well for operating performance in that time
A relatively stagnant level of state funding support for operations in
recent years was partly offset through increases in tuition rates
coupled with positive enrollment growth. Fitch notes that net tuition
revenues increased by a sizeable 12.2% in fiscal year 2012, exceeding
the average annual growth rate between fiscal 2007 and fiscal 2011 of
At the same time, IHL member institutions continued to prudently manage
their respective expense base. MSU, for example, implemented a variety
of initiatives to yield cost savings, including implementing an early
retirement incentive program. As a result of the concerted approach to
managing expenditures, aggregate operating expenses grew by 3.2% in
fiscal 2012 relative to the average annual growth rate between fiscal
2007 and fiscal 2011 of 4.2%.
Importantly, despite a tuition increase of 6.0% (system-wide average) in
fiscal 2014, Fitch believes the cost of attendance at IHL member
institutions remains competitive relative to peer institutions of public
colleges and universities in neighboring states, as these institutions
had to make similar rate increases in response to state funding
Furthermore, the state recently passed a new law that gives the IHL
Board the authority to waive out-of-state tuition for certain
non-Mississippi residents. As the pipeline of in-state high school
graduates, IHL's primary sources of prospective students, is projected
to be pressured over the intermediate term, Fitch believes the new
legislation provides an opportunity for the system to maintain
relatively stable enrollment trends going forward. Fitch notes that the
IHL Board has already approved waiver requests for several institutions,
HEALTHY FINANCIAL CUSHION
The system's healthy operating results have contributed to modest growth
in balance sheet resources. Available funds, defined by Fitch as cash
and investments less certain restricted net assets, totaled
approximately $1.08 billion as of June 30, 2012, or 10.2% above fiscal
2011 and 47.5% over fiscal 2008. These unencumbered financial resources
represented an adequate 38% of fiscal 2012 operating revenues and a
solid 87.2% of total pro-forma debt.
MANAGEABLE DEBT BURDEN
The system's debt portfolio remains very manageable. MADS of
approximately $91.1 million (inclusive of payments on non-cancellable
operating leases, capital leases, and notes) consumed a relatively low
3.2% of unrestricted fiscal 2012 operating revenues. Fitch notes
favorably that the system generally produces at least 2x coverage from
net operating income, including 2.2x in fiscal 2012. Further comfort is
provided by the system's conservatively structured debt portfolio, with
a front-loaded amortization schedule and all outstanding bonds in
SUFFICIENT LIQUID RESOURCES
The 'F1+' rating is based on the availability of adequate, highly
liquid, highly rated securities to cover the maximum potential demand
obligations presented by MSU's CP program ($50 million). MSU does not
have any outstanding variable-rate demand obligations or any other forms
of puttable debt. Further, no other member institution within IHL
maintains a CP program and all of IHL's outstanding bonds are in
IHL's most highly liquid financial resources (consisting of cash, U.S.
government agency obligations, and U.S. treasury obligations) totaled
approximately $705.2 million on June 30, 2012, which is well in excess
of the $50 million maximum authorization associated with MSU's CP
program ($45 million outstanding as of August 2013).
In addition to IHL's significant liquidity, Fitch notes that MSU's
internal liquid resources, which serve as the primary source of support
for its CP program, provide more than sufficient coverage to meet
Fitch's expectations for an 'F1+' rating. As of July 31, 2013, MSU's
internal liquid investments, consisting primarily of cash and U.S.
treasury and agency debt, totaled approximately $109.6 million (after
discounts based on asset type and maturity per Fitch's short-term rating
criteria). These liquid assets covered the maximum authorization by a
sound 2.19x, exceeding the 1.25x coverage Fitch expects for an 'F1+'
MSU maintains a liquidation procedures plan to manage a failed rollover
or remarketing. The plan delineates the specific timing sequences,
procedures for liquidation, and authorized personnel responsible for
these steps. Fitch views favorably the presence of such a plan as it
reflects management's commitment to the timely redemption of maturing CP
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'U.S. College and University Rating Criteria', (May 10, 2013)
'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity',
(June 13, 2013)
'Fitch Affirms Mississippi State University's (MS) Short-Term Rating at
F1+ (April 29, 2013)
'Fitch Rates University of Southern Mississippi Educ Bldg Corp. Rev
Bonds 'AA'; Outlook Stable, dated April 18, 2013'
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
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