|[December 09, 2013]
Fitch Affirms University of Tampa (FL) Revs at 'BBB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'BBB' rating on the following series of
bonds issued on behalf of the University of Tampa, Florida (UT).
--$73.6 million Higher Educational Facilities Financing Authority bonds,
--$40.2 million City of Tampa bonds, series 2006.
The Rating Outlook is Stable.
The bonds are essentially secured by all unrestricted funds of UT.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'BBB' rating primarily reflects UT's
track-record of positive operating performance, which regularly delivers
solid debt service coverage. Credit risks include limited revenue
diversity, a leveraged balance sheet, and a high debt burden with
exposure to variable rate debt.
HIGH REVENUE CONCENTRATION: The diversity of UT's revenue stream is
highly limited, with student charges frequently contributing to over 95%
of total unrestricted operating revenues. Concern is partially offset by
conservative enrollment budgeting practices, well-managed student
discounting, and favorable enrollment trends.
LEVERAGED BALANCE SHEET: A recent drawdown in financial reserves and the
issuance of a direct bank placement to fund various capital projects
have pressured the university's balance sheet. A track-record of solid
operating performance and management's focus on re-building financial
reserves serve to somewhat mitigate a weak financial cushion for the
'BBB' rating category.
HIGH BUT MANAGEABLE DEBT BURDEN: UT's high debt burden is tempered by
the consistent generation of solid debt service coverage from
operations. Further, UT's lack of any long-term debt plans in the near
term should allow its existing debt burden to moderate over time. While
the university's exposure to variable rate debt is somewhat aggressive
for the 'BBB' rating category, Fitch believes UT is adequately
positioned to effectively manage these debt obligations.
OPERATING PERFORMANCE: Given the university's somewhat weak balance
sheet for the 'BBB' rating category, the rating assumes that UT will
continue to register healthy operating results that deliver good debt
INCREASED DEBT LEVERAGE: Growth in UT's already high debt burden, or
debt leverage, could negatively pressure the rating.
Founded in 1931 by the Chamber of Commerce of Tampa, Florida, UT is a
private, four-year liberal arts university located on 102 acres in
downtown Tampa. The university's regional accreditation was most
recently reaffirmed by the Southern Association of Colleges and Schools
for a 10-year term in 2005.
SOUND OPERATING PERFORMANCE
The 'BBB' rating is fundamentally linked to UT's ability to register
healthy operating margins, which have been solidly positive in each of
the past five fiscal years (11.3% in fiscal 2013). Favorable operating
results reflect prudent financial practices, including conservative
enrollment budgeting, tight control over student discounting, which has
remained impressively steady over the past five-years at 28%, and
careful expense management.
HIGH REVENUE CONCENTRATION
Revenues derived from student charges, which regularly constitute the
majority of unrestricted operating revenues (96.9% in fiscal 2013) have
benefited from continual enrollment growth over the past few years.
Total headcount erollment has increased by 15.4% since fall 2009, to
7,260 in fall 2013. Fitch views the university's enrollment trends,
which are supported by continued improvement in the
freshmen-to-sophomore retention rate, favorably. The university's
geographically diverse student body (out-of-state student constituted a
sizeable 66.2% of total undergraduate headcount in fall 2013) is a
credit strength, as this diversity lessens the impact of demographic
shifts and adverse economic factors.
LEVERAGED BALANCE SHEET
A drawdown in financial reserves to support various capital projects
resulted in the weakening of the university's financial cushion. As of
May 31, 2013, available funds (cash and investments less permanently
restricted net assets and debt service reserve monies classified as
unrestricted net assets) totaled approximately $51.6 million and covered
fiscal 2013 operating expenses and long-term debt by 37.5% and 31%,
respectively. While Fitch recognizes the strategic importance of the
financed projects, the accompanying financial burden on the university's
balance sheet is aggressive for an institution rated within the 'BBB'
category. A track-record of solid operating performance and management's
focus on gradually re-building financial reserves serve to somewhat
mitigate weak liquidity ratios.
HIGH BUT MANAGEABLE DEBT BURDEN
The long-term debt includes the issuance of a previously unanticipated
$15 million direct bank placement (DBP) in fiscal 2014, which increased
maximum annual debt service (MADS) by $1 million, to around $14.6
(assuming a 3% annual interest rate on variable rate debt). Despite this
increase, growth in the university's unrestricted revenue base ($155
million in fiscal 2013, or 7.7% above the prior year) kept the MADS
burden relatively steady (9.4% in fiscal 2013). While Fitch considers
this level of debt burden to be high, concern is partially offset by
UT's consistent generation of solid debt service coverage from net
operating income (2.5x in fiscal 2013). Fitch expects the university's
debt burden to moderate over time, as management does not plan to issue
any long-term debt in the near term.
As a result of the new direct placement mentioned above, the
university's debt portfolio now includes three direct bank placements
representing 26.6% of total outstanding bonds ($155.2 million). Two of
the DBPs ($21.3 million outstanding), which includes the new
aforementioned issuance, are in fixed-rate mode with a fully amortizing
principal schedule through maturity (fiscal Years 2018 and 2024), which
eliminates refinancing risk.
The third DPB is in an indexed floating rate with a 20-year maturity due
on May 1, 2032 ($20 million), issued to fund the construction of a new
528-bed residence hall. Fitch notes positively that the project opened
on time and budget and to strong demand (occupancy of 99.8% for fall
2013). Management plans to repay debt principal on this third DPB
through periodic installment payments as to avoid a bullet maturity at
the end of the loan term, which is viewed favorably by Fitch. Based on
the strength of UT's operating margins, Fitch believes the university
has some flexibility to absorb unfavorable movement in interest rates
while continuing to generate healthy financial results.
There remains some concern regarding the potential for debt repayment on
an accelerated timeframe should the covenant package be violated, which
is partially offset by UT's adequate headroom under the financial
covenants included in the bank loan documents and satisfactory liquidity
relative to outstanding DBPs. Fitch will continue to closely monitor
this aspect of the credit.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria', dated May 10, 2013;
--'Fitch Affirms University of Tampa (FL) Revs at 'BBB'; Outlook
stable', dated Jan. 11, 2013.
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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