|[July 30, 2014]
Fitch Rates Widener University (PA) Revs 'A-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'A-' rating to the series 2014 revenue
bonds to be issued in the amount of approximately $19 million by the
Pennsylvania Higher Educational Facilities Authority on behalf of
Widener University (Widener).
The bonds will sell via negotiation on or about the week of Aug. 4. The
proceeds will be used to advance refund the university's outstanding
series 2005 revenue bonds and to pay costs of issuance.
At the same time, Fitch affirms the 'A-' rating on approximately $85.5
million of outstanding revenue bonds.
The Rating Outlook is Stable.
The bonds are a general obligation of the university.
KEY RATING DRIVERS
IMPROVING ENROLLMENT: Widener's headcount enrollment grew slightly in
fall 2013 driven by growth in undergraduate and some graduate programs,
offset by continued but slowing declines in law school enrollment.
Widener's financial performance is highly dependent on enrollment, as
net student fees account for 91.6% of fiscal 2013 unrestricted operating
CONSISTENTLY POSITIVE OPERATING MARGINS: Widener's operating margin
narrowed but remained positive in fiscal 2013. Management has responded
effectively to pressured revenues by containing costs and planning
conservatively. Unaudited fiscal 2014 results indicate margin
improvement due to structural expense reductions and stable operating
STUDENT AID PRESSURES MARGIN: Institutional student aid continues to
grow as Widener expands its undergraduate segment and recruits
academically stronger students. Tuition discounting reached its highest
level over the past five years and, along with lower law school
enrollment, contributed to declines in total net tuition revenue for
fiscal 2013 and (unaudited) 2014.
ADEQUATE FINANCIAL CUSHION: Widener's balance sheet resources relative
to operating expenses are adequate but weaker than similarly rated
peers. Fitch views the university's financial cushion relative to
long-term debt as somewhat stronger, providing a solid level of
financial flexibility that is consistent with the 'A' rating category.
MANAGEABLE DEBT BURDEN: Pro forma maximum annual debt service (MADS)
represented a moderate 4.2% of fiscal 2013 unrestricted operating
revenues. Fiscal 2013 net income available for debt service covered MADS
by a healthy 2.5x. The university has no additional debt plans.
ENROLLMENT STABILITY: Fitch expects Widener to maintain stable to
positive overall enrollment trends while leveling off the growth in
institutional student aid over the next two fiscal years as planned.
Failure to achieve these goals could pressure the rating due to
Widener's high dependence on net student tuition and fees.
Originally founded in Wilmington, DE, in 1821, Widener offers liberal
arts and science degrees for undergraduate, graduate, and professional
students at its main campus in Chester, PA, as well as its auxiliary
campuses in Wilmington, DE and Harrisburg and Exton, PA. Widener also
operates Delaware's only law school. Total fall 2013 headcount
enrollment was 6,311. Widener is accredited by the Middle States
Commission on Higher Education, which last renewed its accreditation in
2012 for a period of 10 years. Widener's graduate and professional
programs all maintain the necessary and proper accreditations.
HIGH TUITION DEPENDENCE; ENROLLMENT IMPROVING
Widener is very dependent on student-generated tuition and fees, which
accounted for 91.6% of unrestricted operating revenues in fiscal 2013.
This is not uncommon among private higher education institutions, but
the university's budget is nonetheless very sensitive to changes in
enrollment. The very competitive environment for schools in the
mid-Atlantic region further necessitates sustaining demand and carefully
managing enrollment levels.
Total headcount enrollment increaed slightly in fall 2013 as growth in
undergraduate enrollment offset continued law school declines.
Undergraduate headcount increased 4.3% to 3,052 as application growth
yielded the university's largest-ever freshman class. The university
expects continued enrollment growth outside the law school through
investment in high growth programs and initiatives to improve retention,
which are starting to show positive results. The university aims to
admit a fall 2014 freshman class that is smaller than its fall 2013
class but larger than in prior years.
Law school headcount enrollment has declined sharply since fall 2011,
consistent with national trends, and continues to challenge overall
enrollment. Widener is actively managing the decline, however, which
should moderate as the size of incoming classes stabilizes. Further,
Widener will likely pursue separate American Bar Association
accreditation of its two law school campuses in Wilmington, DE and
Harrisburg, PA. The two campuses are currently accredited on a combined
basis. Management believes that separating the two campuses would allow
each to focus on its strengths and to market itself more effectively.
PRUDENT MANAGEMENT MAINTAINS POSITIVE OPERATIONS
Widener's GAAP-based operating margin narrowed as anticipated to 1% in
fiscal 2013 (including endowment payout), compared to 1.7% in fiscal
2012, and following a strong history of solidly positive margins
averaging 3.9% (fiscal years 2008-2012). Weaker margins are largely due
to declining enrollment associated with its law school and increased
tuition discounting, both of which contributed to lower net tuition
revenue. Fitch notes that a failure to moderate undergraduate
discounting and grow net tuition revenue over the next two years would
indicate weakness in demand and could negatively pressure the rating.
Unaudited fiscal 2014 operating results appear in line with the stronger
historical levels. Revenues remained challenged, but the university
managed its budget closely and continued to benefit from structural
expense cuts. The fiscal 2015 preliminary budget, which will be
finalized in the fall, conservatively projects a slight deficit due to
law school expenses, including the upfront costs of obtaining separate
accreditations for the law school campuses. Fitch believes it is too
early to estimate actual results but notes Widener's track record of
meeting or exceeding budgeted operating results.
Available funds (defined by Fitch as cash and investments not
permanently restricted) improved modestly to $78.1 million as of June
30, 2013. Coverage of fiscal 2013 operating expenses from available
funds (50.7%) is satisfactory but at the lower end for the 'A' category.
Available funds are adequate compared to total pro forma debt (89.4%)
and are roughly in line with peers, reflecting Widener's moderate
leverage position. Unaudited fiscal 2014 results show further
improvement in available funds based on solid investment returns and an
Fitch is comfortable with moderate volatility in the university's
available funds, as accumulated surpluses from operations remain its
primary vehicle for funding capital projects. Nonetheless, a significant
drawn down in available funds, or additional debt issuance that
pressured liquidity levels, would pressure the rating if not accompanied
by a commensurate increase in revenues.
MANAGEABLE DEBT BURDEN
Widener's positive operations, inclusive of endowment spending, have
historically provided strong coverage exceeding that of similarly rated
peers. Fitch views favorably that pro forma MADS coverage from operating
cash flow remained strong at 2.5x even with the reduced fiscal 2013
operating margin. The university's debt burden remains manageable with
total MADS of $6.5 million consuming a moderate 4.2% of fiscal 2013
unrestricted operating revenues. Widener's moderate debt burden despite
significant capital investment over the past decade reflects its
practice of funding capital projects mainly through operating surpluses.
Widener's debt structure is conservative, with all fixed rate debt and
generally level debt service. A new dormitory project funded with the
series 2013 proceeds is expected to be completed for fall 2015. Costs
for any near-term capital improvements will be offset by internal
resources and cash received from the university's fundraising efforts.
The university has no additional debt or major capital plans at this
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's U.S.
College and University Rating Criteria, this action was informed by
information from Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria', dated May 12, 2014;
--'Fitch Rates Widener University (PA) Revs at 'A-'; Outlook Stable',
dated Aug. 2, 2013.
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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