[March 12, 2015]

Fitch Downgrades Roosevelt University (IL) Revs to 'BBB-'; Outlook Stable

Fitch Ratings downgrades the rating on $225.2 million Illinois Finance Authority revenue bonds issued on behalf of Roosevelt University (Roosevelt) to 'BBB-'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

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 financed facilities.

KEY RATING DRIVERS

DEFICITS DRIVE DOWNGRADE: The 'BBB-' rating reflects the university's fourth consecutive year of negative operating margins, which are weaker than forecasted. Fiscal 2015 is also expected to be negative.

HIGH TUITION AND ENROLLMENT DEPENDENCY: Roosevelt's heavy reliance on student-generated revenues makes financial projections dependent on achieving enrollment goals. Enrollment growth has been uneven, with strength in undergraduate but weakness at the graduate level.

HIGH DEBT LEVERAGE: 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 15.4% of fiscal 2014 operating revenues. This concern is only partially mitigated by the university's ability to meet MADS coverage and lack of additional debt plans.

CAMPUS RESTRUCTURING: The university's conversion of it Schaumberg campus to focus on health sciences, coupled with the retirement of the university President in June 2015, presents enrollment and management uncertainty.

RATING SENSITIVITIES

IMBALANCED OPERATIONS: Inability to steadily improve operating results will further pressure the rating.

ENROLLMENT REMAINS UNCERTAIN: Uncertainty remain due to the university's weak demand and enrollment profile. To support the 'BBB-' rating, Fitch expects enrollment to stabilize and generate consistent growth in net tuition income.

CREDIT PROFILE

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 2014, Roosevelt enrolled 4,814 full-time equivalent students.

CONSECUTIVE OPERATING DEFICITS

Roosevelt has reported negative operating margins on a GAAP basis in fiscal 2013 and 2014, with another GAAP operating deficit expected in fiscal 2015. In fiscal 2014, the university's operating margin was negative 2.8% (a $3.4 million deficit), which compares to a negative 3.1% margin in fiscal 2013. The university had initial operating budgets that were structurally imbalanced in both years, and again in fiscal 2015. The university failed to achieve balance in fiscal 2014 due to higher than expected utility expense and one-time bonus payments for university staff.

Forecasted results for fiscal 2015 are again expected to be negative on a GAAP basis according to management, in-line with the budgeted $2.8 million imbalance. Despite some success in meetin enrollment goals related to the full time cohort in fiscal 2015, expenses and tuition discount were higher than expected. Failure to achieve financial projections over multiple years, and a structurally imbalanced operating budget, are factored into the rating downgrade to 'BBB-'.

Roosevelt's operating revenues are heavily reliant on student generated revenues, about 86.4% of total operating revenues in fiscal 2014.

ENROLLMENT PICTURE DEVELOPING

Roosevelt saw both gains and losses within its academic niche's in fiscal 2015. Full time equivalent (FTE) enrollment improved in fall 2014 to 4,814, particularly for traditional undergraduate students. However, the part time and graduate enrollment cohort continues to hamper overall headcount enrollment growth. The freshmen incoming class reached a record high of about 600 in fall 2014 and undergraduate traditional cohort academic quality remain above average. Positively, freshmen to sophomore retention improved to 65% (from 58.3%) for the 2013 entering class, with retention for the fall 2014 entering class currently tracking the prior year.

Fitch is concerned with financial deterioration from enrollment weakening (or lack of growth) and increasing institutional aid requirement; coupled with the lower tuition rate increases. RU has failed to show any improvement in meeting its initial goals to grow new graduate and new transfer student enrollment by 30% and 48%, respectively, by AY2018.

Fitch will continue to monitor the university's enrollment results in meeting established goals. The university's inability to achieve enrollment projections could further impact the university's financial trajectory.

HIGH DEBT LEVERAGE

Available funds, defined by Fitch as cash and investments not permanently restricted, totaled $102.2 million in fiscal 2014, up 13% from $90.2 million in fiscal 2013. This represented an improved 80.5% of operating expenses and a narrower 42.2% of outstanding debt (about $242 million) in fiscal 2014.

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 compared to outstanding debt.

Annual debt service will increase significantly in 2021 to about $19 million (from the current $15 million). This $19 million is close to maximum annual debt service (MADS) due in 2036. The university's MADS burden is very high at 15.4%. This is only partially offset by achieving 1.2x MADS coverage in fiscal 2014, as well as no additional debt plans.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 16, 2014);

--'U.S. College and University Rating Criteria' (May 12, 2014);

--'Fitch Affirms Roosevelt University (IL) Revs at 'BBB'; 'Outlook Remains Negative' (March 12, 2014).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981194

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