|[August 20, 2014]
Fitch Affirms Wagner College, NY's Revs at 'BBB-'; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the 'BBB-'rating on $12.7 million Build NYC
Resource Corporation revenue bonds, series 2012, issued on behalf of
The Rating Outlook is Stable.
The bonds are secured by a pledge of gross receipts of the college,
supported by a mortgage on all campus property. The series 2012 bonds
provided for a cash-funded debt service reserve in the amount of $1.27
KEY RATING DRIVERS
INVESTMENT-GRADE CHARACTERISTICS: The 'BBB-' rating reflects Wagner's
historically balanced operating performance, adequate annual coverage of
debt service, and solid balance sheet resource levels consistent with an
investment grade rating. Credit risks include high exposure to
variable-rate debt, a recent softening in enrollment, and a high debt
ENROLLMENT-DRIVEN OPERATIONS: Wagner's operating performance remains
heavily reliant on student-generated revenues and stable enrollment. The
college has developed undergraduate and graduate degree programs to
manage the sometimes cyclical nature of programmatic demand.
DEBT STRUCTURE HEIGHTENS RISK: the College's exposure to variable-rate
debt (about 81%) and the attendant risks is very high, particularly
given its limited financial flexibility. The college expects to convert
its variable rate debt to fixed rate during the 2014 calendar year,
which action Fitch views positively.
FAILURE TO STABILIZE ENROLLMENT: An inability to stabilize enrollment,
and grow net tuition could result in a negative rating action.
MAINTAIN OPERATING MARGINS: Failure to maintain break-even operating
performance and generate MADS coverage would lead to negative rating
LIMITED DEBT CAPACITY: Issuance of new debt without a commensurate
increase in resources would negatively pressure the rating.
Wagner College was founded in 1883, and has been located on its Staten
Island, New York, campus since 1918. Full-time equivalent enrollment was
2,111 for fall 2013, up 1%, of which about 84% were undergraduates. The
campus provides a residential college environment, and most
undergraduate students attend on a full-time basis and live on the
college's 105-acre campus. The largest graduate programs include
education, business and nursing.
HISTORICALLY BALANCED FINANCIAL PERFORMANCE
The 'BBB-' rating is supported by Wagner's historically balanced
financial performance. Margins remained at breakeven in fiscal 2013, a
trend seen in the last three fiscal years. The college had generated
stronger margins previously. Fiscal 2013 results continued to be
pressured by tuition discounting, although net tuition revenue increased
3% notwithstanding. College officials report that operations for the
fiscal year ending August 31, 2014 are balanced on a budgetary basis,
and are expected to be similar to fiscal 2013. Expense containment
actions continue. Fitch views Wagner's conservatie management practices
ENROLLMENT DRIVES OPERATIONS
Annual operations are primarily funded from student-generated revenues,
which provided nearly 86% of fiscal 2013 operating revenues. Because of
the close link with enrollment and in recognition of softening in
full-time equivalent enrollment over the past five enrollment cycles,
management initiated a web-based advertising strategy to improve and
expand the college's brand and subsequently enhance demand. Further, the
college has expanded programs catering to students seeking second
undergraduate or graduate degrees in fields with high levels of
professional demand such as nursing and business. These and other
efforts to stabilize enrollment appear to be successful to date, but
Fitch notes the college operates in a highly competitive region.
HIGH DEBT LEVERAGE
Wagner has a high debt burden. Current MADS of $6.3 million occurs in
2016, and represented 9.0% of fiscal 2013 operating revenues. Net income
available for debt service in fiscal 2013 provided an improved 1.4x
current debt service coverage (up from 1.3x in fiscal 2012), but MADS
coverage was only 0.9x (improved from 0.8x in fiscal 2012). Annual debt
service will likely increase somewhat when the college completes its
planned conversion to fixed rate from variable rate debt, possibly in
fiscal 2015. Management does not expect principal amortization to
change. Fitch anticipates ongoing management actions to increase
operating margins, contain expenses, and maintain MADS coverage.
Wagner's debt portfolio currently includes substantial exposure to
variable-rate debt at a level not consistent with the 'BBB' rating
category. Outstanding bonded debt at Aug. 31, 2013 was $72 million
(excluding some notes and leases), of which about 81% is VRDBs or
variable rate bank term loans. These bonds all are amortizing principal,
which is a positive factor. Fitch considers the college's plan to
restructure its variable-rate debt in calendar 2014 as an important
offset to the risks posed by the debt structure. The college reports no
new debt plans, and at this time expects to fund raise for capital
projects. Fitch believes that issuance of debt for new capital projects
could negatively pressure the rating or outlook.
SOLID BALANCE SHEET FOR RATING CATEGORY
A sufficient balance sheet also supports Wagner's investment-grade
rating. Available funds (defined by Fitch as cash and investments not
permanently restricted) has increased nominally in each of the last five
fiscal years. Available funds were $48.7 million in fiscal 2013, equal
to 70.7% of outstanding debt ($74 million, including capital and
operating leases) and 65.7% of operating revenues ($69.6 million). Fitch
considers these ratios consistent with an investment grade institution.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Fitch affirms Wagner College, NY's Revs at 'BBB-'; Outlook Stable
(Aug. 22, 2013);
--'U.S. College and University Rating Criteria' (May 2014).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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