Fitch Affirms The Richard Stockton College of NJ's Revs at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the 'A+' rating on $234.5 million of New Jersey Educational Facilities Authority revenue bonds issued on behalf of the Richard Stockton College of New Jersey (Stockton).

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the college, payable from legally available funds.

KEY RATING DRIVERS

SATISFACTORY FINANCIAL PROFILE: Stockton has consistently generated operating surpluses reflecting sound financial management practices. Financial resources relative to operating expenses and long-term debt remain adequate.

HEALTHY ENROLLMENT TRENDS: Enrollment has been upward trending in recent years, reflecting sound student demand at both the undergraduate and graduate levels.

PRESSURED STATE SUPPORT: The State of New Jersey's ('A' with a Negative Outlook) challenged fiscal condition continues to constrain state appropriations. Flat operating appropriations during a period of institutional growth have made the college more reliant on student tuition and fees, while historically weak state capital support has resulted in an above-average debt burden.

HIGH BUT MANAGEABLE DEBT BURDEN: The college's debt burden is high, with maximum annual debt service (MADS) accounting for 9.6% of fiscal 2013 operating revenues. However, MADS coverage is sound at 1.7x. The lack of additional debt plans should allow the college's high leverage to moderate over time.

RATING SENSITIVITIES

OPERATING PERFORMANCE: Consistently breakeven to positive operating margins generate sound coverage and allow the college to fund capital projects without additional debt issuance. Significant margin deterioration due to weak state funding or operating imbalances at the Seaview resort could pressure the rating.

ADDITIONAL DEBT: While not expected over the near term, additional borrowing that materially increases the college's debt burden would negatively pressure the rating.

CREDIT PROFILE

Founded in 1971, the Richard Stockton College of New Jersey is located on a 1,600-acre campus in the Pomona section of Galloway Township, 12 miles northwest of Atlantic City. The college also owns the nearby Seaview resort, which it purchased in 2010, and operates several instructional sites around southern New Jersey. The board recently approved a proposal to petition the state for a change in its classification from a state college to a comprehensive university.

SATISFACTORY FINANCIAL PROFILE DESPITE PRESSURES

Over the past five audited fiscal years (2009 - 2013), the college has consistently generated positive operating results, including a 4.3% operating margin in fiscal 2013. Fiscal 2014 operating results (unaudited) narrowed somewhat but remained positive, which is consistent with Fitch's expectations for public colleges and universities.

These financial results are impressive given the pressured state funding environment. State support for operations has been effectively flat for the past five fiscal years, despite the college's continued growth over that period, and provided 20.2% of fiscal 2013 operating revenues, down from 26.4% in fiscal 2009. Operation of the Seaview resort is self-supporting on a cash basis but not on a full-accrual basis, also pressuring the GAAP margin somewhat. However, the resort benefits the college's hospitality management program and provides student housing in addition to generating resort revenues.

Fitch believes that continued positive margins despite the aforementioned pressures reflect strong financial management practices as well as sound demand. In fiscal 2014 (unaudited), however, the college's operations relied more heavily on investment income, potentially a more volatile source of revenue, to maintain operating balance. Rating stability is predicated on Stockton's ability to maintain a trend of at least break-even operating results on a GAAP basis.

HEALTHY DEMAND SUPPORTS OPERATIONS

Stockton's student demand remains sound, demonstrated by moderate but consistent enrollment growth. Total headcount enrollment, primarily full-time undergraduates, has increased by 2.8% annually on average from 7,559 in fall 2009 to 8,458 in fall 2013. Preliminary fall 2014 figures are on track with the college's targeted undergraduate growth of 2% annually. Stockton, which implemented only moderate tuition increases in recent years, has maintained relative affordability in-state.

ADEQUATE FINANCIAL RESOURCES

Available funds (AF), defined by Fitch as cash and investments less certain restricted net assets, recovered to $101.8 million at June 30, 2013. AF had decreased to $95.7 million as of June 30, 2012 driven largely by the use of internal resources toward the purchase of the resort and related costs. AF provided an adequate financial cushion, covering fiscal 2013 operating expenses ($188.4 million) and pro forma long-term debt ($252.3 million) by an adequate 54% and 40.4%, respectively.

Fitch notes positively that Stockton has funded its capital needs in recent years largely through operating surpluses and internal resources, avoiding further debt issuance for which there is limited capacity at the current rating level. While the state recently provided significant one-time funding for higher education capital projects, including at Stockton, Fitch does not expect New Jersey to provide significant ongoing capital support, given its current budgetary challenges. As a result, Stockton's internal funding of capital needs, while prudent, will likely constrain growth of balance sheet resources.

HIGH BUT MANAGEABLE DEBT BURDEN

The college's debt burden is high, reflecting historically weak state capital support, but has moderated somewhat in recent years. MADS of approximately $18.8 million (occurs in fiscal 2022) consumed a high 9.6% of fiscal 2013 unrestricted operating revenues, down from 12.4% in fiscal 2009. MADS coverage, however, remained sound at 1.7x in fiscal 2013. In addition, the college's track record of balanced operations, its conservative (fixed-rate, level) debt structure, and its lack of near-term debt plans somewhat mitigate concerns over the high debt burden.

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

Applicable Criteria and Related Research:

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

--'Fitch Affirms The Richard Stockton College of NJ's Revs at 'A+'; Outlook Stable' (October 22, 2012).

Applicable Criteria and Related Research:

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=898354

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
Fitch Ratings, Inc.
+1-212-908-9199
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alexander Vaisman
Associate Director
+1-212-908-0721
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
Fitch Ratings, Inc.
+1-212-908-9199
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Alexander Vaisman
Associate Director
+1-212-908-0721
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com