NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term rating on $40 million of higher education facility revenue bonds issued by the Rhode Island Health and Educational Building Corporations on behalf of the New England Institute of Technology (NEIT).
The Rating Outlook is Stable.
SECURITY
The bonds are secured by all available funds of NEIT and
are further secured by a first mortgage lien.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'A+' rating
reflects NEIT's record of strong operating performance; solid balance
sheet resources and experienced management team. Offsetting factors
include recent enrollment declines; significant revenue concentration;
and limited fund raising capabilities.
RECENT ENROLLMENT PRESSURES: Recent enrollment gains in medical industry programs are offset by decline in demand for trades programs as a result of a poor economy and weak building industry forecasts.
SUCCESSFUL CAMPUS RELOCATION: NEIT's planned campus relocation to a technologically scalable building with flexible space was successfully completed in calendar 2011 with minimal dislocation of students as a result of the move.
CREDIT PROFILE
NEIT consistently generates a double-digit operating
margin; the fiscal 2011 margin was 23.8%. While operations through mid
year are slightly weaker than the last year, primarily the result of
decreased enrollment and increased auxiliary system expenses, the school
expects to close fiscal 2012 with a positive margin. Fitch views these
results as achievable given historically conservative management of
resources and consistent profitability in operations notwithstanding
down cycles in previous years.
NEIT's enrollment declined by a fairly significant 11%, to 2,933
students during fall 2011. Largely driving this loss was weak demand for
traditional trade programs given the sluggish recovery in building
industry employment.
To offset weak demand for its traditional
offerings, NEIT continues to invest in medical professional programs,
including nursing, physical therapy, occupational therapy, and a
veterinary technician program. NEIT's opening of its new campus provides
flexible capacity to accommodate the technological requirements of these
programs. NEIT's ability to stabilize enrollment is assumed in its 'A+'
rating.
Historically strong operating performance has enabled NEIT to maintain its policy of zero endowment reliance and build its balance sheet cushion. Available funds, defined as cash and investments not permanently restricted, totaled $132 million as of June 30, 2011. This cushion provides an important buffer against unexpected declines in headcount; NEIT's operations are funded almost entirely by student generated revenues (96.5% of fiscal 2011 operating revenues).
As a percentage of operating expenses ($53 million) and total pro-forma long-term debt ($59 million), available funds provided strong coverage of approximately 2.5 times (x) and 2.3x, respectively. Investment returns for NEIT have been modest, but positive, for the past two years. Lower returns relative to historical benchmarks are a result of NEIT's decision to reallocate a greater portion of its funds into lower yielding, more liquid asset classes. This decision was driven, in large part, by NEIT's experience during the financial market crisis when its portfolio lost nearly one-third of its total market value.
Pro-forma MADS ($4 million) comprises a moderately high 5.8% of 2011 operating revenues. However, NEIT consistently generates strong coverage from operations. Fiscal 2011 net income available for debt service, covered maximum annual debt service (MADS, $4 million) by a strong 5.4x.
NEIT's long-term debt totals $59 million, including notes payable and revenue bonds. Approximately 25% of the capital structure is in variable rate mode, supported by an irrevocable, direct pay letter of credit with TD Bank; all of the variable rate debt is synthetically swapped to fixed rate. Given the size of its resource base, Fitch believes NEIT can comfortably manage the risks attendant to variable rate debt and related interest rate hedges.
Founded in 1940, NEIT offers professionally and technically focused undergraduate and graduate programs. NEIT operates on two campuses in Warwick, Rhode Island.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported
Rating Criteria' (June 20, 2011);
--'U.S. College and University
Rating Criteria' (July 14, 2011);
--'New England Institute of
Technology' (April 28, 2010).
Applicable Criteria and Related Research:
Revenue-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S.
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
New
England Institute of Technology (Rhode Island Health and Educational
Building Corp.)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=515845
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