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TMCNet:  Fitch Rates Miami University (OH) Revs 'AA'; Outlook Stable

[April 22, 2014]

Fitch Rates Miami University (OH) Revs 'AA'; Outlook Stable

NEW YORK --(Business Wire)--

Fitch Ratings assigns an 'AA' rating to approximately $134.9 million of Miami University (MU or the university) general receipts revenue, series 2014.

The fixed rate series 2014 bonds are expected to price via negotiated sale on or about the week of May 5. Proceeds will be used to fund various infrastructure improvements, residence hall and dining facility renovations, and costs of issuance.

In addition, Fitch affirms the 'AA' rating on $400.6 million of MU general receipts revenue bonds and general receipts revenue and refunding bonds; and $105.4 million of MU federally taxable general receipts revenue bonds designated as Direct Payment Build America Bonds.

The Rating Outlook is Stable.

SECURITY

General receipts revenue bonds are secured by a pledge of the university's general receipts, which are primarily comprised of tuition and fees, net auxiliary revenues, revenues from educational activities, unrestricted gifts, and investment income.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA' rating reflects Miami's positive operations over the last four years, sound balance sheet resource cushion, and stable enrollment profile.

RELIANCE ON (News - Alert) STUDENT-GENERATED REVENUES: Due to limited operating support from the state of Ohio ('AA+'; Stable Outlook), MU is unusually reliant on tuition and fee revenues, including from out-of-state students, to balance its operating budget compared to other public universities.

ACTIVE, ENGAGED LEADERSHIP: The university's proactive management team has successfully executed a plan to turn around previously deficit-generating operations and continues to perform rigorous long-range planning.

MANAGEABLE DEBT BURDEN: Though the issuance of the series 2014 bonds will increase MU's debt burden, the university's conservative debt structure and its ability to generate adequate coverage from operations are viewed as somewhat mitigating this concern.

RATING SENSITIVITIES

ENROLLMENT MANAGEMENT: Given the university's high dependence on student-generated revenues, deterioration of its strong demand profile and stable enrollment base could negatively pressure the credit.

ADDITIONAL DEBT: While not expected in the near term, additional debt that increases the university's moderately high debt burden without commensurate growth in available resources could negatively pressure the rating.

CREDIT PROFILE

MU was established in 1809 and commenced its liberal arts-based instruction in 1824, making it the second oldest public university in the state of Ohio. The university's well-maintained main campus is located in Oxford, OH, approximately 35 miles north of Cincinnati. The university also maintains two regional campuses in Hamilton and Middletown, OH, a learning center in West Chester, OH and a European campus in Luxembourg. The university is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, which last renewed Miami's accreditation in 2005 for a term of 10 years.

SOLIDLY POSITIVE FINANCIAL PERFORMANCE

MU's financial profile has exhibited stability since Fitch's last review. Audited results for fiscal 2013 indicate a fourth consecutive year of solidly positive operating margins (8.5%). Fitc views this favorably, as it further solidifies the sustainability of the operational turnaround that has been underway since fiscal 2010. Management continues to be actively engaged in strategic planning to ensure that the university is able to provide a low-cost educational option with high-quality academic outcomes going forward.

The university's ability to maintain balanced operations is also highly contingent upon stability in its primary revenue stream - student-generated revenues. These revenues have historically provided 71.3% of annual operating revenues (fiscal years 2009-2013). This lack of revenue diversity is unusual among public universities, reflecting the state of Ohio's low operating support for Miami, together with Miami's national draw, which allows it to collect additional fees from its large population of out-of-state students.

INCREASED BALANCE SHEET RESOURCES

Since the university's operations have been surplus-generating over the last four fiscal years (2010-2013), its balance sheet has posted solid gains and provides a healthy financial cushion against the university's financial obligations. Net of unspent bond proceeds, available funds (defined by Fitch as cash and investments not permanently restricted) grew by 19.3%, to $431.2 million as of June 30, 2013. As compared to fiscal 2013 operating expenses ($520 million) and total pro-forma debt ($679.1 million, which includes bonds, capital leases, and unamortized premium), available funds represent a solid 82.9% and 63.5%, respectively.

In addition, the MU Foundation (the foundation) holds another $416.7 million of cash and investments as of June 30, 2013 in an endowment pool for the university's benefit. MU successfully completed a comprehensive campaign in 2013 which raised $535.7 million, roughly half of which was for endowment support. While the endowment supports the university's operations, endowment funds are restricted and are therefore not included in Fitch's calculation of available funds.

STRONG OPERATING PROFILE

MU's enrollment (at the main campus in Oxford), which underpins student-generated revenues, grew modestly by 1.2% in fall 2013. Continued growth in undergraduate enrollment, which accounts for 86.4% of the total, was partially offset by a decline in graduate headcount. Enrollment stability is also bolstered by the high quality of admitted students, which improves retention. Fitch expects a stable to modestly growing enrollment trend going forward based on MU's strong reputation, high demand and selectivity, and successful recruiting strategies.

MODERATELY HIGH DEBT BURDEN

Fitch continues to view the university's burden as manageable despite increases in recent years. Pro-forma maximum annual debt service (MADS) is estimated to reach $54.7 million (due in fiscal 2017), and will represent 9.6% of fiscal 2013 operating revenues. While this level is somewhat high, Fitch notes that the university's decision to utilize a conservative debt structure, amortizing bond series in 20-25 years rather than the standard 30 years, is the primary driver of the higher than average burden. Income from operations provides 2.0x coverage of pro-forma MADS. In line with similarly rated public institutions, Fitch views this level of coverage as adequate given MU's strong operating profile and financial flexibility.

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 Rates Miami University (OH) Revs ' AA'; Outlook Stable', dated Oct 10, 2012.

'Fitch Rates Ohio's $300MM Higher Education GO Bonds 'AA+'; Outlook Stable', dated Feb 27, 2014.

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=827449

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 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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