|[September 24, 2013]
Fitch Rates University of Colorado's Series 2013 Revs 'AA+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'AA+' rating to the following series of
bonds issued by the Regents of the University of Colorado (CU):
--$146.9 million university enterprise revenue bonds, series 2013A;
--$12.6 million university enterprise revenue bonds, series 2013B
--University enterprise refunding revenue bonds, series 2013C.
The fixed-rate bonds are expected to sell via negotiation as early as
the week of Oct. 7. Proceeds of the series 2013A and 2013B bonds will be
used to finance various capital projects at CU's Boulder, Colorado
Springs, and Aurora campuses; fund capitalized interest; and pay costs
of issuance. Depending upon market conditions at the time of sale, CU
also intends to issue series 2013C bonds to refund outstanding
university enterprise revenue bonds.
In addition, Fitch has affirmed the 'AA+' rating on CU's $1.28 billion
of outstanding university enterprise revenue bonds.
The Rating Outlook is Stable.
University enterprise revenue bonds are a special limited obligation
secured by and payable from a pledge of net university revenues. Pledged
revenues consist primarily of auxiliary revenues, indirect cost recovery
revenues, student fees, a small portion of tuition revenue, and other
self-funded and research related services. Pledged revenues exclude
KEY RATING DRIVERS
SOLID FINANCIAL PROFILE: The 'AA+' rating primarily reflects CU's track
record of positive operations, fueled by historical enrollment growth
and fairly diverse revenues; a manageable pro forma debt burden; solid
level of balance sheet resources relative to operations and debt; and
significant fundraising ability.
STABLE DEMAND TRENDS: Steady, modest enrollment growth over the past
several years, despite a recent softening in graduate student
enrollment, stems from CU's prominent position as the flagship
institution for higher education and research in the state of Colorado.
MANAGEABLE DEBT LEVELS: The university maintains a moderate pro forma
debt burden, with debt periodically issued to fund capital needs offset
by resources available for its repayment. Net revenues pledged to
university enterprise revenue bonds generally provide solid coverage of
related debt service of at or above 2 times (x).
STABILIZING STATE SUPPORT: Following several years of reductions in
state funding for higher education, state cuts moderated in fiscal 2013
and the state's enacted fiscal 2014 budget includes a modest increase.
CU's limited reliance on the state for operating support partly
mitigates concern over the reduced level of funding received over the
past few years.
ENROLLMENT STABILITY: As student-generated revenues represent CU's
largest funding source, stable overall demand trends, coupled with
management's ability to budget for recent declines in graduate program
enrollment, will influence the rating and/or outlook.
RESEARCH FUNDING: A less certain federal budget environment may also
have rating implications as federal grant and contract revenues
represent CU's second largest funding source. The Stable Outlook assumes
that management will continue to successfully align research
expenditures with funding levels.
Created in 1861, CU is a comprehensive graduate research university and
the largest institution of higher education in Colorado. In addition to
its main campus in Boulder, the university has campuses in Colorado
Springs and Denver, as well as the Anshutz Medical Campus located in
Aurora, CO. The Boulder campus has been a member of the Association of
American Universities since 1967. Fall 2012 headcount enrollment totaled
57,592, with 44,700 full-time equivalent students. These figures fell
very slightly from fall 2011 (less than 1%) due to some softening in
graduate program enrollment, although are up 6.3% and 3.7%,
respectively, since fall 200. Based on preliminary data, the fall 2013
headcount is expected to be approximately 58,200, up about 1% from the
fall 2012 level.
Revenue Diversity Drives Financial Performance
CU's fairly diverse revenue base continues to drive its track record of
generally positive operations. As calculated by Fitch, CU's operating
margin was a sound 2.1% in fiscal 2012, in line with the average of the
prior five fiscal years (2007-2011); also 2.1%. Enrollment growth and
tuition increases; rising healthcare revenues from patient volume
growth; and robust research activities contribute to CU's sound
operating profile. Based on unaudited fiscal 2013 results, CU's
operating performance was slightly below the fiscal 2012 level but still
positive. For public colleges and universities, Fitch expects at least a
breakeven level of operating performance.
In fiscal 2012, the largest revenue source remained tuition, fees and
auxiliary revenues (35.3%), followed closely by grants and contracts
(31.3%), then healthcare revenues derived from CU's faculty physician
practice (17.8%). CU's percentage of revenues derived from state support
(4.1%) is among the lowest of all Fitch-rated public colleges and
universities, offsetting the impact of general appropriation reductions.
Fitch notes that a small portion of tuition and fee revenue is derived
from the state through its college opportunity fund and fee-for-service
contracts in lieu of general appropriation funding to the university.
Adjusting for these items, revenue dependency on the state rises to
about 9%; still relatively low. Based on unaudited fiscal 2013 results,
CU's revenue diversity remained unchanged.
While state support represents a minimal portion of CU's operating
budget, management took steps to offset cuts during fiscal years
2009-2011 by raising tuition and fees and reducing and eliminating
various administrative costs. Receipt of federal stimulus monies also
helped offset state cuts through fiscal 2011. Following some improvement
in fiscal 2012, state funding to CU was cut a modest $4.8 million for
fiscal 2013, which based on the above-mentioned budget measures, Fitch
viewed as manageable for the university. State funding was increased for
fiscal 2014, with CU expecting an approximate $9 million increase. CU's
larger funding sources (primarily student-generated revenues and
healthcare services) also continue to provide operating stability.
CU maintains solid balance sheet liquidity. Available funds (defined as
cash and investments less certain restricted net assets) totaled $2.07
billion as of June 30, 2013 (unaudited), up from $1.79 billion as of
June 30, 2012. Available funds covered fiscal 2013 unaudited operating
expenses ($2.78 billion) and pro forma debt (about $1.45 billion) by a
healthy 74.6% and 142.9%, respectively. In addition, CU benefits from
the support of various 501c(3) organizations. As of June 30, 2013, the
University of Colorado Foundation, the largest of CU's related
foundations, held total cash and investments of $1.21 billion.
Manageable Debt Burden Supports Capital Plan
CU's debt burden is manageable despite a gradual increase in financial
leverage over the past few years, Pro forma maximum annual debt service
(MADS) of about $121.1 million (fiscal 2016) represents a moderate 4.3%
of fiscal 2013 unaudited operating revenues. Fitch continues to
recognize the strength of the revenues pledged to CU's enterprise
revenue bonds. On an unaudited basis, pledged revenues totaled $288.8
million in fiscal 2013, up from $283.5 million in fiscal 2012, and cover
pro forma MADS by a healthy 2.39x.
CU's forward capital plans remain manageable. The university has an
estimated $218 million of projects currently planned through fiscal
2017, including various academic and student-life related projects at
its Boulder and Colorado Springs campuses. Additional athletics-related
projects may be incorporated into the capital plan, due in part to CU's
recent switch to the NCAA's PAC-12 Conference, though timing and funding
details have not yet been decided. Fitch expects CU's manageable capital
plans and somewhat front-loaded pro forma debt service schedule to keep
the university's debt burden at a moderate level going forward.
The Boulder campus was affected by the recent flooding in Colorado.
Management reported that while several buildings experienced water
damage, the damage was not severe. The campus shut down for four days
and several students were evacuated. It has since reopened is now fully
operational. No serious injuries were reported and there was no reported
damage at CU's other campuses. The university is still assessing the
situation, and while no cost estimate has been reported yet, management
expects the damage to be fully covered by insurance.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Rates Univ. of Colorado's Revs 'AA+'; Outlook Stable' (Oct. 2,
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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