Fitch Affirms Upper Iowa University Revs at 'BBB+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'BBB+' rating on approximately $44.3 million private college facility revenue and refunding bonds outstanding issued by the Iowa Higher Education Loan Authority on behalf of Upper Iowa University (UIU, or the university). The Rating Outlook is Stable.

RATING RATIONALE:

--The 'BBB+' rating reflects a solidly positive operating history and strong maximum annual debt service (MADS) coverage, bolstered by healthy growth in enrollment over the past five years.

--Counterbalancing credit considerations include reliance on student-generated revenues, a significantly increased (though still manageable) debt burden, and limited balance sheet flexibility.

--The university's largely student-generated revenue base benefits from a diversity of traditional and non-traditional education delivery modalities which reduces the vulnerability of UIU's financial profile to headcount declines in any one enrollment cohort.

KEY RATING DRIVERS:

--Enrollment stability in each of the university's education delivery modalities to support the consistent generation of positive operating results.

--Issuance of additional debt only commensurate with growth in financial resources available to support its repayment.

SECURITY:

The bonds are an unsecured general obligation of UIU, payable from all legally available resources.

CREDIT SUMMARY:

UIU's primary financial strength is its consistently positive operating performance. Over the past five years, the university has produced an average surplus of 6%, including a historically high 8.4% in fiscal 2010. The university's management takes a conservative approach to budgeting, assuming no enrollment growth and reserving 5% of expenses for contingency. In addition to prudent management, successful operations are also the result of healthy enrollment growth in both graduate and undergraduate populations. Total full time enrollment (FTE) grew 31.8% over the past five enrollment cycles, including 29.1% growth in undergraduate students and 67.6% in graduate students.

Stable enrollment is a crucial aspect of UIU's overall credit profile, as the university is reliant on student-generated revenues (77.2% over the past five years). UIU's use of multiple education delivery modalities is viewed favorably and provides some diversity to an otherwise concentrated revenue base. UIU has a traditional liberal arts campus, extension centers throughout the central U.S. and abroad and an on-line programs. The factors driving headcount in each of the modalities are not correlated and thus declines experienced by one enrollment cohort would likely be offset by increases in another. Recent enrollment growth was largely achieved through increases in non-traditional students. While generally speaking, a non-traditional population base contributes positively to a university's bottom line requiring a lower expense base, it also tends to be more vulnerable to economic cyclicality than a more traditional enrollment cohort. UIU effectively manages this risk, employing strategies designed to attract and retain adult and part-time learners.

Despite strong operating results, UIU's balance sheet resources remained largely constant over time, growing just 3.5% between fiscal 2006 and fiscal 2010. Available funds, defined by Fitch as cash and investments not permanently restricted, represented 38% of operating expenses and 63.3% of total pro forma debt in fiscal 2010. While adequate for the 'BBB+' rating, the university's financial cushion could be pressured by the issuance of additional debt, unplanned operating deficits or a market downturn. Despite the relatively light cushion provided by available funds to financial leverage, UIU's operating strength ensured strong 2.0 times (x) coverage of MADS ($3.3 million in fiscal 2028) during fiscal 2010. Fitch considers UIU's debt burden manageable, with MADS representing 7.1% of fiscal 2010 operating revenues and manageable additional capital needs.

UIU was founded in 1857 and offers both undergraduate and graduate degrees. Its main residential campus is located in Fayette, Iowa. With six distinct starting points during each academic year, students take two full-credit courses over eight week periods, providing flexibility to meet degree requirements.

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

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', dated Oct. 08, 2010;

--'College and University Rating Criteria', dated Dec. 29, 2009.

For information on Build America Bonds, visit www.fitchratings.com/BABs

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565

College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493170

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