|[March 12, 2014]
Fitch Affirms Roosevelt University (IL) Revs at 'BBB'; Outlook Remains Negative
NEW YORK --(Business Wire)--
Fitch Ratings affirms the rating on $226.1 million Illinois Finance
Authority revenue bonds issued on behalf of Roosevelt University
(Roosevelt) at 'BBB'.
The Rating Outlook is Negative.
The bonds are a general obligation of the university. Additional
security provisions include a cash-funded debt service reserve, funded
at maximum annual debt service (MADS), and a first lien mortgage on the
KEY RATING DRIVERS
DEFICIT DRIVES NEGATIVE OUTLOOK: The Negative Outlook reflects the
university's weaker than forecasted negative operating margin for fiscal
2013, driven by expense overages in auxiliary services and under budget
tuition fee revenue. Despite three consecutive years of budget
reductions, the fiscal 2014 budget is unbalanced.
HIGH TUITION DEPENDENCY: Roosevelt's heavy reliance on student-generated
revenues makes financial projections almost wholly contingent on the
achievement of performance and enrollment goals. Though the new
strategic enrollment plan sets forth goals in that area, Fitch believes
that a Negative Outlook remains appropriate until results that would
underpin the viability of the financial projections can be demonstrated.
HIGH LEVERAGE PRESSURES BALANCE SHEET: The limited nature of the
university's existing financial cushion is a concern, especially
relative to its highly leveraged position. MADS burden is a very high
15.5% of fiscal 2013 operating revenues. This concern is partially
mitigated by the university's ability to meet MADS coverage and lack of
additional debt plans in the near term.
ENGAGED MANAGEMENT TEAM: The university's seasoned and collaborative
management team implemented a new round of strategic planning under a
five-year institutional strategic plan approved in June 2013.
Roosevelt's plan projects long-term enrollment and fiscal growth.
IMBALANCED OPERATIONS: Inability to meet projections of break-even
operations in fiscal 2014 and fiscal 2015, with incremental improvement
in fiscal 2016 and beyond, will result in further negative rating action.
ENROLLMENT REMAINS UNCERTAIN: Uncertainties remain around the
university's weak demand and enrollment profile. Further softening in
this area in fall 2014 could undermine the financial results required to
uphold the 'BBB' rating.
Founded in 1945, Roosevelt's main campus is located in the historic
auditorium building in downtown Chicago, IL. The recently opened Wabash
building serves as an academic center and provides additional student
housing facilities at the downtown campus. The university also owns and
operates a 30-acre suburban campus in Schaumburg, IL, a northwest suburb
of Chicago. In fall 2013, Roosevelt enrolled 4,723 full-time equivalent
students, compared to 4,760 in fall 2012.
OPERATING DEFICIT POSITION REALIZED
Roosevelt has historically generated narrow operating margins, averaging
negative 0.8% over the past five fiscal years. Based on discussions with
management and projections provided, Fitch expected Roosevelt to
generate a deficit of negative 2% in fiscal 2013 before returning to
break-even in fiscal 2014 and demonstrate incremental improvement
thereafter. These expectations and the university's somewhat volatile
operating performance were factored into the 'BBB' rating. However,
fiscal 2013 operating results were weaker than anticipated, as the
deficit reached negative 3.1%.
The operating deficit in fiscal 2013 was driven primarily by expense
overages in auxiliary services at the Wabash building project,
depreciation expense, workforce modernization costs, and below expected
enrollment level in fall 2012 resulting in a budgeted shortfall in net
tuition and fee revenues. Roosevelt's operating budget is heavily
reliant on student generated revenues, which provides for 86.6% of total
operating revenues in fiscal 2013.
VIABILITY OF FINANCIAL PROJECTIONS UNPROVEN
Roosevelt approved the fiscal 2014 budget with a $3 million deficit.
According to management, revenues to date are higher than budgeted.
However, a $1 million revenue reduction for gifts budgeted was taken due
to missed fundraising targets. The budget was reduced in the frst
quarter to reflect this change. However, another budget revision is
expected in the second quarter to reflect better than expected spring
2014 enrollment, which generated a $1.5 million increase in tuition
revenues over budget.
A multi-year financial plan including five years of projections
(FY2014-FY2019) presented to Fitch reflect gradual operating improvement
commencing in fiscal 2016. The university constrained expenses in fiscal
2014, including holding open positions vacant, not restoring the
university pension match, and reallocating resources internally where
needed. As a result, the university is projecting break-even operating
results on a GAAP basis for fiscal 2014. Cash surpluses in fiscal 2015
will likely be slim due to the increased principal payment occurring in
that year, according to the university's projections.
Fitch notes that projections to achieve break-even results in fiscal
2014 are contingent upon stabilizing enrollment trends in the near term.
Unless Roosevelt can demonstrate it has achieved performance and
enrollment goals, as set forth in its new strategic enrollment plan,
negative rating action is likely to occur as these results underpin the
viability of the financial projections.
STRATEGIC ENROLLMENT PLANNING
During the 2012-2013 academic year, management developed new enrollment
initiatives and goals to support its new institutional strategic plan,
replacing the former plan adopted in 2003. While Roosevelt's efforts to
strengthen demand have been ongoing for several years with varying
levels of success, the strategic plans' goals include enhancing the
student experience to increase retention, graduation rates and
The opening of the Wabash building at the downtown campus in May 2012
has allowed the university to provide greater advising, support and
community services to help improve retention, which is currently below
average among Roosevelt's self-identified peer group. In addition, the
Wabash building provides additional housing (626 beds) to meet occupancy
demand and space rental during the summer months.
In December 2012, the Lilian and Larry Goodman Center (a multi-purpose
facility) opened providing expansion of the university's intercollegiate
athletics program. Furthermore, the pharmacy college, which opened in
summer 2011 on the Schaumberg campus, distinguishes the university's
offerings by increasing its presence in science, social science, health
science and interdisciplinary humanities programs. Overall, the recent
campus expansions promote a traditional campus experience with
undergraduate program offering and services. These are expected to
result in a gradual shift from the part-time, non-traditional population
to the full-time, traditional cohort.
EVOLVING DEMAND PROFILE
Total headcount declined 3.1% in fall 2013 to 6,145 students, after 4.2%
decline in fall 2012. Overall, the expectations for flat enrollment
growth did not materialize in fall 2013 and results represented a loss
of 198 students (FT and PT undergraduate and graduate and non-degree).
According to management, ongoing problems in the job market have
continued to erode demand for part-time programs, particularly in
The university's inability to achieve the projections presented for fall
2014 enrollment could further impact its financial trajectory.
Previously adopted enrollment strategies have yet to show any favorable
impact on overall credit quality which supports the decision to maintain
the Negative Outlook.
Fitch recognizes that the recently deployed Institutional Strategic Plan
and enrollment strategies, which are expected to promote long-term
enrollment growth by fall 2018, need time to evolve. The university
plans to reach 100% of the enrollment goals presented to Fitch by fall
2018 which appear manageable. Fitch will continue to monitor the
university's progress in meeting these goals. An inability to show
incremental improvement would likely put downward pressure on the
university's credit rating.
LEVERAGE PRESSURES LIMITED BALANCE SHEET
Available funds, defined by Fitch as cash and investments not
permanently restricted, totaled $90.8 million in fiscal 2013, up
slightly from $88.1 million in fiscal 2012. This represented a narrower
71.6% of operating expenses ($126.7 million) and a largely flat 37.2% of
total outstanding long-term debt ($243.7 million) in fiscal 2013,
compared to 74.8% and 36.4%, respectively, in fiscal 2012.
Fitch views the modest growth in available funds favorably but continues
to view the limited nature of the university's financial cushion as a
concern, particularly as compared to the university's sizeable debt
Maximum annual debt service (MADS) totals $19 million, and is due in
2036. Annual obligations will step up to $16 million in 2015 (from the
current $14.1 million). In fiscal 2013, net income available for debt
service provided 1.1x MADS coverage, compared to 0.8x in fiscal 2012.
The improved coverage is viewed favorably and Fitch notes positively
that the university has no additional debt plans. Given the expectation
of continued slim operations in the near term, the high debt burden
(15.5% of fiscal 2013 revenues) will continue to exert pressure on the
balance sheet cushion.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Downgrades Roosevelt University (IL) Revs to 'BBB'; 'Outlook
Negative' (March 15, 2013).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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.
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
[ InfoTech Spotlight's Homepage ]