NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'BBB' rating on approximately $23.8 million of outstanding educational revenue and revenue refunding bonds, series 2004C, issued by the New Jersey Educational Facilities Authority (NJEFA) on behalf of Fairleigh Dickinson University (FDU, or the university).
The Rating Outlook is Stable.
Revenue and revenue refunding bonds are a general obligation of the university.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: FDU's consistently positive operating results, solid balance sheet resources, and manageable debt burden underpin its 'BBB' rating. Offsetting factors include high revenue concentration and enrollment volatility.
SOLID FINANCIAL MANAGEMENT: FDU benefits from its longstanding and experienced management team, which has implemented strategic initiatives over the past few years, enabling the university to maintain positive operating performance while growing balance sheet resources.
SIGNIFICANT REVENUE CONCENTRATION: Typical of many private higher education institutions, the university's dependency on student-generated revenues (95.1% of total unrestricted operating revenues in fiscal 2013) is extremely high. This degree of revenue concentration exposes the university to unexpected, unfavorable shifts in student headcount and demand patterns.
MANAGEABLE DEBT BURDEN: Maximum annual debt service (MADS) of approximately $9 million, consumes a moderate 4.3% of fiscal 2013 unrestricted operating revenues which is offset by FDU's strong debt service coverage (2.9X) and lack of additional debt plans.
OPERATING STABILITY: FDU's rating is sensitive to material upward or downward shifts in enrollment given its significant tuition dependence which drives operating performance. An inability to make the necessary budget adjustments to manage downward shifts, in order to maintain surplus operations, would negatively impact the rating.
FDU is a private university founded in 1942. The university operates two primary campuses in New Jersey, each with its own identity and separate mission: the historic and primarily liberal arts-oriented College at Florham in Florham Park and the primarily career and graduate-oriented Metropolitan Campus in Teaneck, New Jersey. The university also operates an international campus in Vancouver, British Columbia with over 600 students. The university offers over 100 degree programs on the graduate and undergraduate levels. The combined campuses serve approximately 12,200 students.
UNFAVORABLE ENROLLMENT SHIFT
In fall 2013, total headcount enrollment declined 4.4% to 12,226 students, after 2.1% growth in the prior year. The downturn is largely attributable to an 8.5% decline in undergraduate headcount enrollment (including part-time) at FDU's two primary New Jersey campuses. Management believes full-time undergraduate enrollment was negatively impacted by Hurricane Sandy in addition to general economic pressures. Certain program expansions (mainly part-time) included in the budget which did not start in the fall semester also contributed to the negative variance in part-time enrollment. In those cases, the university did not incur related costs. Undergraduate enrollment at the Vancouver campus dropped slightly to 238 students from 252 undergraduate students in fall 2012.
The decline in undergraduate headcount enrollment was partly offset by strong growth at the graduate level. Overall, graduate headcount increased 7.2% in fall 2013 to 3,573 students, compared to 2.2% growth in fall 2012. After several years of volatility in enrollment at the graduate level, FDU's graduate enrollment at the New Jersey campuses increased 5.1% in fall 2013. Additionally, graduate enrollment at the Vancouver campus trended upward increasing from 284 students to 369 students.
Enrollment budget projections have not yet been finalized for fall 2014 but FDU is currently planning to budget for a small increase of 40 freshmen and 50 transfers over fall 2013 levels. Overall, enrollment for the U.S. campuses is expected to be close to or slightly higher than fall 2013. According to management, year-to-date yield from application to admit for fall 2014 is better than last year. Fitch views positively FDU's pro-active enrollment management strategy which is to establish goals that are conservative.
Overall, Fitch is concerned with the decline in undergraduate enrollment in fall 2013 and will continue to monitor FDU's ability to stabilize enrollment in fall 2014. The strong growth in graduate enrollment, coupled with management's historically conservative budgeting practices and ability to make mid-year adjustments, are expected to drive positive operating results in fiscal 2014. Conversely, FDU's inability to stabilize undergraduate enrollment in fall 2014 could put negative pressure on the rating.
SIGNIFICANT TUITION DEPENDENCE
Fitch recognizes that it is not uncommon for private higher education institutions to be heavily reliant on student-generated revenues; however, FDU has slightly more limited revenue diversity than other 'BBB' private university's rated by Fitch. The university's extremely high dependence on student-generated revenue (95.1% of fiscal 2013 total unrestricted operating revenues) emphasizes FDU's need to sustain and carefully manage enrollment levels.
Positively, the university's expansion into Canada is driving growth and providing some diversity in revenues. Enrolling well over 600 students at the Vancouver campus in fall 2013 has allowed FDU to expand geographically. According to management, the Vancouver campus generated approximately 4.3% of total fiscal 2013 unrestricted operating revenues. This is anticipated to grow as the size of the campus recently expanded, thus increasing capacity to approximately 1,000 students.
STRONG OPERATING PERFORMANCE
FDU's consistently positive operating performance is driven by growth in student-generated revenues (tuition and fees) and prudent fiscal management practices. As calculated by Fitch, the university's fiscal 2013 operating margin (reflective of full endowment spending) was healthy at 5.7%, consistent with the 5.5% margin achieved in fiscal 2012. FDU's fiscal 2013 operating margin exceeds the 'BBB' rated private university category average.
The university's history of surplus operations, despite volatility in enrollment, is viewed positively by Fitch. FDU's conservative budgeting practices and strong fiscal management have allowed the university to manage unexpected events, namely enrollment shifts. After the decline in undergraduate enrollment in fall 2013 was realized, gross tuition revenue budgeted for fiscal 2014 (for U.S. campuses) was down approximately $1.7 million. According to management, all of the needed adjustments were reflected in the October budget for fiscal 2014 and all three of FDU's campuses continue to be self- supporting in fiscal 2014. Favorably, management's current forecasts, based on fiscal 2014 year-to-date results, indicate another positive operating surplus for fiscal 2014.
FDU's strong surpluses, along with planned giving and cash received from the university's recently completed capital campaign which exceeded its targeted goal, have historically allowed it to fund ongoing capital projects. The university has no near-term new building plans. Given its strong focus on affordability, FDU approved a modest tuition rate increase (3% average for full-time undergraduate) in fall 2013, a historical low, compared to the 5%-6% approved in recent years. Fitch will monitor the university's ability to maintain surplus operations while managing its tuition rate given its enrollment volatility.
SURPLUSES DRIVE RESOURCE GROWTH
FDU's available funds balance has grown incrementally in each of the last four fiscal years, largely due its strong surplus operations. Available funds, or cash and investments not permanently restricted, continued to increase to $103.2 million at the end of fiscal 2013 from $97.3 million in the prior year, covering a sound 51.8% of operating expenses and 110.9% of total debt. The university's liquidity relative to debt should continue to increase as existing debt is paid down given the university's lack of additional debt issuance plans. Overall, FDU's financial cushion compares favorably to other 'BBB' rated private universities Fitch rates.
MANAGEABLE DEBT WITH STRONG COVERAGE
FDU's debt is conservatively structured with MADS of $9.1 million due in fiscal 2014, then level-to-declining annual obligations thereafter. The university's debt burden is moderate with MADS comprising a manageable 4.3% of fiscal 2013 operating revenues. The university's strong MADS coverage of 2.9x continues to mitigate its moderate debt burden. A recent private bank placement completed in January 2014, refunding its series 2002D bonds, is expected to provide the university significant economic savings.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (May 10, 2013);
--'Fitch Affirms Fairleigh Dickinson University's (NJ) Revs & Revenue Rfdg Bonds at 'BBB'; Outlook Stable' (April 2, 2013).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria