|[March 18, 2014]
Fitch Affirms Albany College of Pharmacy and Health Sciences (NY) at 'A-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the long-term rating of 'A-' on $11.7 million
of civic facility revenue bonds series 2004A issued by the Albany
Industrial Development Agency on behalf of Albany College of Pharmacy
and Health Sciences (ACPHS or the college).
The Rating Outlook is Stable.
The series 2004A bonds are secured by a pledge of gross revenues and a
mortgage lien and security interest in the student center and classroom
building (now the library building), as well as a debt service reserve
fund (DSRF) funded to annual debt service.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'A-' continues to reflect the
college's strong operating performance and solid financial cushion,
supported by prudent financial management and a favorable demand
profile. Offsetting factors include the college's high tuition
dependence, regional student draw, and exposure to variable rate debt
NICHE PROGRAMS SUPPORT STRONG MARGINS: Despite possible margin
compression in coming years, Fitch expects stable demand for ACHPS'
pharmacy and health-related programs, coupled with prudent financial
management, to fuel consistently positive operating performance and
BALANCE SHEET AFFORDS FINANCIAL FLEXIBILITY: The college's balance sheet
resources, which continue to grow due to strong margins, provide
flexibility and cushion against unforeseen variances in operations.
MANAGEABLE DEBT PROFILE: ACPHS's debt burden remains moderate, with no
plans for debt-supported projects in the near term. Fairly significant
exposure to variable rate debt, partially hedged, is somewhat mitigated
by the college's track record of managing the various risks associated
with these instruments.
MARGIN EROSION: The college is highly reliant on student revenues, which
can be subject to fluctuations based on regional competition and demand
for specific programs. If not properly managed, such fluctuations could
cause significant erosion of historically positive margins, negatively
pressuring the rating.
ADDITIONAL DEBT ISSUANCE: While not currently expected, additional debt,
in amounts that materially affect the college's financial profile, could
pressure the rating.
ACPHS was founded in 1881 and is the oldest pharmacy school in New York
State. The college offers six undergraduate programs and five graduate
programs in health sciences, as well as a doctor of pharmacy degree
(Pharm.D.). The Pharm.D. program is offered on the main campus in Albany
and on the Colchester campus, the only pharmacy school in Vermont. The
college is accredited by the Middle States Commission on Higher
Education, which extended its accreditation in 2010 for another 10-year
term. The Pharm.D. program is separately accredited by the Accreditation
Council for Pharmaceutical Education, which extended its accreditation
in 2011 for a six-year term.
NICHE PROGRAMS SUPPORT STABLE DEMAND
A focus on pharmacy and health sciences programs, which Fitch notes are
regionally and nationally in demand, drives the college's stable demand
profile. Despite its primarily regional draw, ACPHS has consistently
generated strong application volume and stable incoming student yields.
FTE enrollment of 1,623 has largely stabilized, growing 0.9% annually on
average over the past five years.
Importantly, strong freshmen-to-sophomore retention rates have
contributed to enrollment stability. The college's well-managed
enrollment base, despite growing regional competition, partially offset
concerns related to its high reliance on student-generated revenues
(87.8% of fiscal 2013 operating revenues). While the tuition discount
rate has increased slightly in recent years, Fitch notes that it remains
low (15.6%) and manageable.
STRONG MARGINS SUPPORT BALANCE SHEET
Through prudent financial management and favorable student demand, ACPHS
has consistently generated robust positive operating margins over the
past nine years. The operating margin was a strong 7.8% in fiscal 2013,
but was below the prior five-year average margin of 14.1%. The college
expects moderate margin compression through fiscal 2015, owing largely
to competitive pressures, but expects to continue to generate soundly
positive margins. Fitch notes that smaller positive margins are still
consistent with the rating category, especially considering the
college's balance sheet, which is much improved in recent years, and
strong budgetary controls.
Strategic reinvestment of operating surpluses over the past five fiscal
years has nearly doubled the college's available funds, defined by Fitch
as cash and investments not permanently restricted. As of June 30, 2013,
available funds totaled $46.3 million, representing a solid 99.2% of
fiscal 2013 operating expenses ($46.7 million) and a stronger 146.9% of
total pro-forma long-term debt ($31.5 million, inclusive of
non-cancellable operating leases). Fitch notes positively the college's
practice of setting aside surpluses for quasi-endowment and capital
MODERATE DEBT BURDEN WITH VARIABLE RATE DEBT
The college's strong operating performance drove high MADS coverage of
4.2x in fiscal 2013. Fitch-calculated MADS of $2.4 million occurs in
fiscal year 2029.
The college's debt burden is moderate, as MADS accounted for 4.8% of
fiscal 2013 operating revenues. However, its debt portfolio is fairly
aggressive, with two series of variable rate demand bonds (VRDBs)
accounting for 53.5% of total bonded debt. Positively, outstanding VRDBs
are fully supported by irrevocable, direct pay letters of credit (LOCs)
provided by TD Bank, NA (rated 'AA-'/'F1+' by Fitch). One LOC was
renewed in August 2013, well ahead of expiration, and extended to 2016.
The other LOC expires in December 2014.
Additionally, ACPHS's VRDBs are partially hedged by an interest rate
swap, also provided by TD Bank, NA. One of two original swaps expired in
January 2013, and the remaining swap hedging 28.2% of VRDBs outstanding,
will expire in December 2014 with the related LOC. The college is
evaluating its capital structure in advance of the expiration of its
interest rate swap agreement in December 2014. Fitch notes that ACPHS's
leadership team has historically demonstrated prudence in managing the
risks associated with its outstanding VRDBs and expects management to
address the expiration of the LOC and swap in a similar manner.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'U.S. College and University Rating Criteria' (May 10, 2013);
'Fitch Upgrades Albany College of Pharmacy and Health Sciences, NY's
Revs 'A-'; Outlook Stable' (April 4, 2012)
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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