Fitch Rates Pomona College's (California) Series 2011 Revs 'AAA'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a 'AAA' rating to the following series of bonds issued by the California Educational Facilities Authority (CEFA) on behalf of Pomona College (Pomona):

--$7,235,000 CEFA revenue bonds, series 2011.

The fixed-rate series 2011 bonds are expected to sell via negotiated sale during the month of June. Bond proceeds will be used to refund the college's outstanding series 2001 revenue bonds and to pay various costs of issuance.

At the same time, Fitch affirms the 'AAA' rating on Pomona's approximately $185.5 million of outstanding CEFA revenue bonds.

The Rating Outlook is Stable.

RATING RATIONALE:

--Pomona's significant level of balance sheet resources, evidenced by its strong liquidity relative to debt and operations, fund raising capabilities and conservative debt issuance practices, continue to underpin the 'AAA' rating;

--The college benefits from strong student demand, demonstrated by increasing applications, very selective admissions and a steady, solid matriculation rate;

--Pomona's positive operating performance continues to be heavily reliant upon investment returns generated by its pooled investment fund.

KEY RATING DRIVERS:

--Maintenance of balance sheet liquidity at or near current levels;

--Continued generation of investment returns in amounts sufficient to support operations while maintaining the college's existing financial cushion.

SECURITY:

The series 2011 bonds, which rank on parity with Pomona's outstanding revenue bonds, are an unsecured general obligation of the college, payable from all legally available funds. As is typical at the 'AAA' rating category, there are minimal additional bondholder protections outside of the general revenue pledge.

CREDIT SUMMARY:

Pomona's impressive balance sheet liquidity and minimal financial leverage underpins its 'AAA' rating. As of June 30, 2010, available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, totaled $1.39 billion. Available funds covered fiscal 2010 operating expenses ($119.2 million) and outstanding debt ($185.5 million) by a very strong 11.6 times(x) and 7.5x, respectively. Similar to many private colleges and universities with like-sized endowments, Pomona has significant exposure to alternative, illiquid asset classes. Excluding these investments, the college's adjusted available funds would still provide strong coverage of both operations and debt. Moreover, the market value of the college's pooled investment fund grew to approximately $1.72 billion as of March 31, 2011 (unaudited) from $1.5 billion as of June 30, 2010.

Pomona continues to be reliant on investment returns generated by its pooled investment fund to support operations. Investment income, inclusive of annual endowment spending, represents the college's largest revenue source, averaging about half of total operating revenues over the past five fiscal years. Student-generated revenues comprise the second largest revenue source and average just over one third of revenues. Inclusive of endowment spending, Pomona's operating results have been consistently positive. The endowment distribution for fiscal 2010 totaled $66 million, resulting in an 11.6% operating margin. Pomona expects to end fiscal 2011 with another operating surplus based on a lower endowment distribution of approximately $60.4 million. The college's fiscal 2012 operating budget assumes a modest increase in endowment spending with a draw of $61.4 million.

Pomona maintains an entirely fixed-rate debt portfolio, a credit factor viewed favorably by Fitch. While it is not precluded from issuing floating rate debt in the future, Fitch notes that given its balance sheet strength, the college maintains the financial flexibility to manage some level of floating rate debt exposure without causing a material impact to its credit profile. Pro forma MADS of about $9 million (excluding bullet payments) is expected to occur in fiscal 2013 and consumed a moderately high though manageable 6.7% of fiscal 2010 operating revenues. Pomona continues to generate solid debt service coverage, with fiscal 2010 income available for debt service of $33.9 million (inclusive of endowment spending) providing 3.8x MADS coverage. The college has no additional debt or major capital plans over the near term. Longer-term capital needs include two academic buildings that are anticipated to be funded by gifts and internal reserves, although some level of debt may be considered.

Founded in 1887, Pomona is a private, independent co-ed liberal arts college, located in Claremont, CA. Fall 2010 enrollment totaled 1,554 students. Pomona maintains selective admissions criteria, demonstrated by a fall 2010 acceptance rate of 14.7%. The matriculation rate remained steady, averaging about 40% over the past five fall enrollment cycles. To date, the college has received approximately 7,200 applications for fall 2011.

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

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (Oct. 08, 2010).

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

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

Applicable Criteria and Related Research:

College and University Rating Criteria

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

Revenue-Supported Rating Criteria

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

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