Fitch Rates New Jersey City University (NJ) Rev Bonds 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'A' rating to approximately $36.3 million of revenue and refunding bonds, series 2015A, issued by the New Jersey Educational Facilities Authority (EFA) on behalf of New Jersey City University (NJCU).

The fixed rate bonds are expected to sell via negotiation the week of Jan. 12. Bond proceeds will be used for various capital projects including a science building renovation and addition, build out of leased business school space, and other campus improvements as well as to refund all of the outstanding 2002A and part of the outstanding 2008E bonds, fund capitalized interest and pay costs of issuance. At the same time, Fitch affirms the 'A' ratings on approximately $128 million of outstanding revenue and refunding bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are an unsecured general obligation of the university, payable from all legally available funds.

KEY RATING DRIVERS

STABLE CREDIT PROFILE: The 'A' rating reflects Fitch's view that the current financing, which was anticipated during the last review, does not materially change NJCU's credit profile. The university has limited balance sheet resources and a moderately high debt burden offset by balanced operations, adequate debt service coverage, and generally stable demand.

BALANCED OPERATIONS GENERATE ADEQUATE COVERAGE: Management continues to achieve generally breakeven or positive operating results, including a 3% operating margin in fiscal 2014, despite a challenging state funding environment in New Jersey ('A'/Negative Outlook) and softening enrollment trends. Fitch expects balanced operations to continue to generate adequate coverage, similar to 1.3x coverage of pro forma maximum annual debt service (MADS) from fiscal 2014 operations.

SLIM RESOURCE LEVEL: Balance sheet resources are fairly limited, providing only modest coverage of operating expenses and debt. Available funds, defined as cash and investments less certain restricted net assets, are low but acceptable for the rating category at 31.4% of operating expenses and 25.1% of pro forma debt as of June 30, 2014.

GENERALLY STABLE DEMAND: NJCU's competitive position remains generally stable. Enrollment levels dipped somewhat in fall 2014, but incoming student levels were flat. NJCU continues to benefit from affordability relative to peers and good local demand. Fitch views positively management's current strategy to drive incremental enrollment growth, which is well-aligned with its capital plans.

MODERATELY HIGH DEBT BURDEN: NJCU's debt burden is moderately high but remains manageable, with pro forma MADS consuming 8.8% of fiscal 2014 operating revenues. Concern over the debt burden is partially mitigated by continued adequate debt service coverage from operations and a lack of near-term additional debt plans.

RATING SENSITIVITIES

BALANCED OPERATIONS: Failure to maintain generally breakeven-to-positive operating margins would negatively pressure the rating. Fitch expects the university to continue to manage effectively through potential fluctuations in enrollment or state funding.

ADDITIONAL DEBT: Additional debt not accompanied by a commensurate increase in resources or income available for debt service would negatively pressure the rating. NJCU has no additional debt plans in the near term. There is an upcoming privatized student housing project, but project debt is expected to be off-balance sheet and non-recourse to the university.

CREDIT PROFILE

Opened in 1929 and granted university status in 1998, NJCU is a four-year coeducational public university located in Jersey City, NJ. NJCU offers 43 baccalaureate degree programs in the arts and sciences, professional studies and teacher education. In addition, the graduate studies program offers 27 masters and two doctoral programs. NJCU has an urban mission and is primarily a commuter institution, attracting the majority of its students from the state's most populated counties. The university is accredited by the Middle States Commission on Higher Education, which last affirmed its accreditation in 2010 for a term of 10 years.

BALANCED OPERATIONS GENERATE ADEQUATE COVERAGE

The university has maintained balanced operations, with a five-year average operating margin of 1.6% despite flat state operating support. Fiscal 2014 operations generated a positive 3% operating margin. State operating support is expected to remain flat, and net tuition and fees may soften somewhat in fiscal 2015 due to lower fall 2014 enrollment. However, Fitch continues to expect breakeven to positive results due to the university's track record of good expense management and balanced operations. Coverage of pro forma MADS from operations remains adequate at 1.3x in fiscal 2014. Fitch notes that continued balanced operations and adequate debt service coverage are necessary to maintain the current rating level.

SLIM BALANCE SHEET RESOURCES

The university's balance sheet resources are limited, and metrics will weaken slightly due to the additional debt. Available funds totaling $45.4 million as of June 30, 2014 were flat compared to the prior year, as capital spending offset an operating surplus. Available funds provide limited coverage of operating expenses ($144.6 million) and pro forma debt ($181.1 million) of 31.4% and 25.1%, respectively. This level of available funds, however, has improved from 20.8% of expenses and 23.2% of debt in fiscal 2009 due to consistent cash surpluses.

GENERALLY STABLE DEMAND

Fitch considers NJCU's competitive position generally stable despite some recent enrollment volatility. FTE enrollment fell 2.9% to 6,045 in fall 2014 driven by graduate and undergraduate declines. However, enrollment remains generally in line with historical levels. Fitch believes that NJCU benefits from its affordability relative to peers and good local demand, including strong ties with local community colleges.

In addition, the university is pursuing strategies to achieve incremental enrollment growth, which include programmatic changes to better align with market demand and areas of strength, expansion of marketing and recruiting efforts, and increased focus on residential enrollment and student quality, which should improve retention. Fitch considers these strategies reasonable. Further, they are aligned with and supported by capital plans including student housing and upgraded facilities related to programs that are likely to drive growth. Fitch notes that stagnant state support has increased the importance of net student fee revenue to NJCU's budget. The Stable Outlook assumes near-term progress in stabilizing enrollment levels.

MODERATELY HIGH DEBT BURDEN

NJCU's debt burden is moderately high, with pro forma MADS consuming 8.8% of fiscal 2014 operating revenues. However, this is typical of New Jersey public universities, which have historically received minimal state capital support. The university implemented a facilities fee in fiscal 2012, which Fitch considers prudent, to offset additional debt service costs related to the projects. The university's conservative debt structure and history of balanced operations with adequate coverage partially mitigate concern over its debt burden. NJCU has no near term plans for additional debt.

An upcoming privatized student housing project is expected to begin shortly on the university's West Campus land near the main campus. The $47 million project will be financed through the NJCU Foundation and will be non-recourse to the university. Fitch does not include this project debt in its debt metrics for the university. If NJCU were to assume responsibility for project debt, available funds relative to debt would decline.

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

Fitch's rating relies on certain information provided by Morgan Stanley & Co. LLC. acting as underwriter.

Applicable Criteria and Related Research:

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

--'Fitch Affirms New Jersey City University (NJ) Rev and Rfdg Bonds at 'A'; Outlook Stable', June 25, 2014;

--'Fitch Rates New Jersey's $525MM GO Bonds 'A'; Outlook Negative', Nov. 24, 2014.

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=965815

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
+1 212-908-9199
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Colin Walsh
Director
+1 212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1 212-908-0723
or
Media Relations, New York
Elizabeth Fogerty
+1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Analyst
+1 212-908-9199
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Colin Walsh
Director
+1 212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1 212-908-0723
or
Media Relations, New York
Elizabeth Fogerty
+1 212-908-0526
elizabeth.fogerty@fitchratings.com