NEW YORK--(BUSINESS WIRE)--Fitch Ratings upgrades the following series of bonds issued on behalf of the University of Tampa (UT) to 'BBB+' from 'BBB'.
--$71.6 million Higher Educational Facilities Financing Authority bonds, series 2012A;
--$39.3 million City of Tampa bonds, series 2006.
The Rating Outlook is Stable.
The bonds are payable from all unrestricted funds of UT.
KEY RATING DRIVERS
STRONG MARGINS DRIVE UPGRADE: UT's consistent generation of strong positive operating margins is a primary credit strength supporting the upgrade to 'BBB+' by providing good financial flexibility and strong debt service coverage.
HEALTHY STUDENT DEMAND: The university's demand profile remains sound, as indicated by continued enrollment growth. UT's revenues are very concentrated in student-generated revenues, making effective management of enrollment critical to operating results.
MODEST LIQUIDITY: University of Tampa's unrestricted cash and investments provide adequate cushion compared to its budget. However, available funds as a percentage of long-term debt (43.8%) and operating expenses (49%) are lower than similarly rated peers. Fitch believes modest liquidity is mitigated somewhat by continued strong operating results and debt service coverage from operations.
MANAGEABLE DEBT BURDEN: UT's debt burden is moderately high, with maximum annual debt service (MADS) consuming 8.1% of fiscal 2014 operating revenues. However, Fitch believes the debt burden is manageable in light of strong MADS coverage consistently over 2x and a lack of additional long-term debt plans.
POSITIVE OPERATIONS: Rating stability assumes continued generation of strong operating margins, which provide solid coverage and financial flexibility to offset modest balance sheet resources relative to debt and expenses.
BALANCE SHEET STRENGTH: Additional debt or draws on available funds that materially increase leverage would negatively pressure the rating. Acceleration of direct bank placements could also negatively affect the rating. However, Fitch considers such risk well-managed at this time due to UT's ample headroom under covenants.
Founded in 1931 by the Chamber of Commerce of Tampa, Florida, UT is a private, four-year liberal arts university located on 102 acres in downtown Tampa. The university's regional accreditation was most recently reaffirmed by the Southern Association of Colleges and Schools for a 10-year term in 2005.
CONTINUED STRONG OPERATING PERFORMANCE
The 'BBB+' rating reflects UT's ability to generate consistently strong operating margins, which have averaged 12.2% over the past five fiscal years. Favorable operating performance is the result of continued healthy student demand and prudent financial practices including conservative enrollment budgeting; tight control over student discounting, which has remained impressively steady over the past five-years at about 28%; and careful expense management. UT's operations consistently produce strong coverage of debt service and provide the university with significant flexibility to absorb unanticipated operating stress. Fitch expects UT's strong margins to continue.
HEALTHY ENROLLMENT SUPPORTS MARGINS
Favorable enrollment trends continue to support the university's strong operating margins. Effective management of enrollment is crucial to the bottom line, as student charges make up a very high 97% of unrestricted operating revenues. Headcount enrollment has increased by 19.5% since fall 2010 to 7,683 in fall 2014 due to sound student demand and retention. UT's demand profile benefits from the school's improved academic reputation, location, up-to-date campus, and affordability relative to peers. In addition, its student base is geographically diverse (68% out-of-state), lessening the effect of adverse demographic or economic shifts in a particular area.
MODEST LIQUIDITY OFFSET BY STRONG MARGINS
The university's balance sheet resources improved in fiscal 2014 but remain below similarly rated peers. Available funds (cash and investments less permanently restricted net assets, unspent proceeds and other debt reserves classified as unrestricted) of $69.5 million equaled 49% of unrestricted operating expenses and 43.8% of long-term debt. UT has historically directed most of its very strong cash surpluses into capital projects, resulting in a 53.7% increase in net PP&E over the past five years while debt increased only 23.1%. This approach limits the need for capital debt, which Fitch considers prudent, but also limits the growth of available funds. While capital needs are slowing somewhat, only incremental balance sheet growth is expected from operations over the near term. However, Fitch believes that balance sheet resources below similarly rated peers are offset by UT's consistently strong surpluses, which provide substantial operating flexibility.
MODERATELY HIGH BUT MANAGEABLE DEBT BURDEN
The university's debt burden is moderately high, with MADS consuming 8.1% of fiscal 2014 unrestricted operating revenues. However, UT has generated solid MADS coverage from operations of 3.6x in fiscal 2014 and generally at or above 2x over the past five years. Fitch believes the university's debt burden is manageable and will moderate over time due to continued revenue growth and a lack of additional long-term debt plans.
In addition to the Fitch-rated bonds, UT has three direct bank placements (series 2012B, 2012C, and 2013) totaling $38.9 million, equal to about 25% of total bonds outstanding. Only 13.1% of total debt is variable rate. In addition, UT could be forced to pay off or remarket $13.2 million of unamortized series 2012C bonds in 2022. Fitch considers these risks manageable. The direct bank placements have financial covenants not included in the rated bonds. Fitch believes that UT has sufficient liquidity in the event of bank accelerations to pay off the direct placement bonds, but notes such a drain on liquidity would likely cause negative rating action. However, Fitch considers the debt structure acceptable at this time, given UT's ample headroom under covenant requirements and the lack of cross-default provisions.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria', dated May 12, 2014;
--'Fitch Affirms University of Tampa (FL) Revs at 'BBB'; Outlook Stable', dated Dec. 09, 2013.
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria