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TMCNet:  Fitch Affirms University of Tampa (FL) Revs at 'BBB'; Outlook Stable

[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, series 2012A;

--$40.2 million City of Tampa bonds, series 2006.

The Rating Outlook is Stable.

SECURITY

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.

RATING SENSITIVITIES

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 service coverage.

INCREASED DEBT LEVERAGE: Growth in UT's already high debt burden, or debt leverage, could negatively pressure the rating.

CREDIT PROFILE

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=811106

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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