NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following revenue bonds issued by the Jackson State University (JSU) Educational Building Corporation (EBC):
--$55.2 million revenue bonds series 2015A (facilities and refinancing project);
--$14.3 million taxable revenue bonds series 2015B (facilities and refinancing project).
The bonds are expected to price via negotiation on or about the week of Feb. 16, 2015. Series 2015A bond proceeds will be used to fund capital projects at JSU's main campus in the city of Jackson, advance refund a portion of outstanding series 2006A revenue bonds, and current refund all outstanding series 2007 bonds. Series 2015B taxable bond proceeds will be used to terminate an existing swap agreement.
The Rating Outlook is Stable.
SECURITY
EBC bonds are payable from designated revenues of the eight academic institutions overseen by the Mississippi State Institutions of Higher Learning (IHL, or the system), pursuant to a lease agreement. Designated revenues include net tuition, fees, and auxiliary enterprises; sales and services; other operating revenues; state operating appropriations; and unrestricted net assets. IHL's obligation under the lease is absolute and unconditional.
There is no debt service reserve fund for the JSU EBC's series 2015 bonds.
KEY RATING DRIVERS
SOUND SYSTEM FINANCIAL OPERATIONS: The 'AA' rating reflects IHL's sound and stable financial profile, evidenced by consistently break-even to positive GAAP-based operating performance, a satisfactory level of available funds relative to operating expenses and debt, a diverse revenue base, and state operating and capital support (State of Mississippi rated 'AA+' with a Negative Outlook by Fitch).
INTEGRAL STATE HIGHER EDUCATION ROLE: IHL institutions benefit from their important role of providing all 4-year public higher education and research services in the state. Additionally, UM's Medical Center is a major healthcare provider.
MANAGEABLE DEBT BURDEN: The system's manageable pro-forma maximum annual debt service (MADS) burden is a relatively low 3.3% of unrestricted operating revenues, and net operating income regularly provides solid MADS coverage averaging more than 2x since fiscal 2010, including 2.5x in fiscal 2014. Ongoing capital plans for member institutions appear manageable.
RATING SENSITIVITIES
DETERIORATION OF FINANCIAL PROFILE: Material erosion in system-wide operating performance or balance sheet ratios, which is not anticipated at this time, could pressure the rating. IHL operating and balance sheet ratios are near the low end of peer public universities, factors that are offset by other noted system strengths.
CREDIT PROFILE
Founded in 1944, the IHL governs the state's eight 4-year higher education institutions: University of Mississippi (UM), Alcorn State University, Delta State University, Jackson State University, Mississippi State University (MSU), Mississippi University for Women, Mississippi Valley State University, and University of Southern Mississippi (USM). It also includes the University of Mississippi Medical Center, which is part of UM.
Fitch views the system's historical stability as providing some flexibility to manage enrollment and demographic cycles. Rapid system enrollment growth since 2008 has leveled off in recent years due to lower community college enrollment and thus fewer transfer students, as well as flat to declining numbers of high school graduates in Mississippi. Headcount for the fall 2014 academic term at IHL member institutions was about 79,700, or 0.7% less than fall 2013 headcount. FTE enrollment, 70,778 in fall 2014, was essentially flat from the prior year. IHL projects flat to declining system enrollment in the next several years, even with aggressive out-of-state recruitment (26% of system undergraduates in fall 2014 were from out of state).
JSU is the fourth largest IHL member institution and the only public, four-year institution in central Mississippi. JSU, one of the federally-designated historically black colleges and universities in the U.S., offers degrees at the bachelors through doctoral levels. Healthy headcount growth has averaged 2.3% annually since fall 2010 to 9,508 in fall 2014, which drives the university's need for additional student housing.
SOUND FINANCIAL OPERATIONS
IHL's balanced operating performance supports the 'AA' rating. IHL consistently generates break-even to positive GAAP-based operating results, averaging 1.29% over the past five years, including 1.82% in fiscal 2014. Positive results in fiscal 2010 through 2013 occurred despite a pressured state-funding environment - state funds declined 10% in that time - and continued declines in federal grants and contracts due to cut backs and sequestration. However, in a positive turn, state operating appropriations increased 5.5% in fiscal 2014 and another 6.3% in the current fiscal 2015.
Fitch views IHL as having good revenue diversity. In fiscal 2014, operating revenues included operating appropriations (22.6%), health care operations (29.2%), grants and contracts (12.9%, including federal scholarship programs); and student/auxiliary fees (23.9%). Management expects system-wide operating performance for the fiscal year ending June 30, 2015 to again be balanced.
ADEQUATE BALANCE SHEET RATIOS
The system's balance sheet remains consistent with the 'AA' rating category. Available funds (AF), defined by Fitch as cash and investments less certain restricted net assets, totaled $1.16 billion at June 30, 2014, up slightly from fiscal 2013. AF represented an adequate 37.8% of operating expenses and a stronger 86.7% of pro-forma debt.
Fitch's AF calculation does not include endowment held in separate foundations. At the end of fiscal 2014, foundation net assets benefiting UM, MSU and USM totaled $1.0 billion, of which the majority was restricted.
MANAGEABLE DEBT BURDEN
System debt totals about $1.3 billion, including bonds, notes, non-cancellable operating leases, and capital leases. Pro-forma MADS of approximately $100 million represented a low 3.3% of fiscal 2014 operating revenues. The system's debt portfolio is structured conservatively, with front-loaded amortization and mostly fixed-rate debt. Fitch notes favorably that institutional MADS coverage is regularly around 2x, and was 2.5x in fiscal 2014.
Future debt plans appear manageable. Member institutions are planning approximately $150 million of debt issuance within the next 24 months, including an additional $50 million for future JSU dormitory projects. Additionally, UM plans to lease an athletic pavilion from the UM foundation, essentially repaying the $75 million estimated construction cost over time as lease payments.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Fitch Rates $936MM Mississippi GO Bonds 'AA+'; Outlook Remains Negative' (Jan. 21, 2015);
--'Mississippi State Institutions of Higher Learning' (Jan. 13, 2015);
--'U.S. College and University Rating Criteria' (May 12, 2014).
Applicable Criteria and Related Research:
Mississippi State Institutions of Higher Learning
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=829268
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=979314
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