Fitch Rates University of Tampa (FL) Series 2015 Revs 'BBB+'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a 'BBB+' rating to the approximately $81.9 million of City of Tampa, Florida Revenue and Revenue Refunding Bonds, series 2015 issued on behalf of the University of Tampa (UT).

The bonds are expected to sell via negotiation the week of April 6, 2015. Proceeds will refinance the outstanding series 2006 bonds, refinance a privately placed bank loan, fund a portion of construction costs toward the 2015 project, and pay costs of issuance.

In addition, Fitch affirms the ratings on the following bonds issued on behalf of UT:

--$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.

SECURITY

The bonds are payable from all unrestricted gross revenues of UT.

KEY RATING DRIVERS

STABLE CREDIT PROFILE: UT is a private not-for-profit comprehensive university serving approximately 7,700 students on its campus adjacent to downtown Tampa, FL. The 'BBB+' rating reflects UT's track record of strong operating margins and good student demand, which help offset modest balance sheet metrics and very high tuition dependence relative to similarly rated peers. UT's debt burden is moderately high but manageable given its strong operations.

STRONG OPERATING MARGINS: UT's consistent generation of strong positive operating margins is a primary credit strength, providing good financial flexibility and strong debt service coverage. Consistently positive margins reflect healthy student demand, conservative budgeting practices, and strong internal controls.

STABLE BUT MODEST LIQUIDITY: The additional borrowing does not materially increase UT's debt relative to its financial resources. The university's unrestricted cash and investments provide adequate cushion compared to its budget. However, available funds as a percentage of pro forma long-term debt (37.9%) and operating expenses (49%) are weaker than similarly rated peers. Fitch believes modest liquidity is mitigated somewhat by continued strong operating results and debt service coverage from operations.

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.

MANAGEABLE DEBT BURDEN: UT's debt burden is moderately high, with adjusted pro forma maximum annual debt service (MADS) consuming 7.5% of fiscal 2014 operating revenues. However, Fitch believes the debt burden is manageable in light of strong MADS coverage over 2x and a lack of additional long-term debt plans.

RATING SENSITIVITIES

POSITIVE OPERATIONS: Rating stability assumes continued generation of strong operating margins, which provide solid coverage and operating 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. However, incremental growth in UT's available funds relative to debt and expenses could improve the rating over time.

CREDIT PROFILE

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 very conservative budgeting and strong internal controls. UT's operations consistently produce strong coverage of debt service, provide the university with significant budgetary flexibility, and fund capital investment while limiting leverage. Fitch expects UT's strong margins to continue.

MODEST LIQUIDITY OFFSET BY STRONG MARGINS

The university's balance sheet resources are weaker than similarly rated peers but remain adequate for its budget. The additional debt does not materially increase UT's debt relative to its financial resources. Available funds (cash and investments less permanently restricted net assets, unspent proceeds and other debt reserves classified as unrestricted) of $69.5 million as of May 31, 2014 equaled 49% of unrestricted operating expenses and 37.9% of pro forma long-term debt. Due to continued strong operations and use of some proceeds to reimburse the university for project costs already paid, available funds metrics at year-end are expected to be similar to or better than May 2014 levels. Fitch believes UT's ample operating flexibility and strong coverage mitigate weaker balance sheet cushion.

HEALTHY ENROLLMENT

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.

MODERATELY HIGH BUT MANAGEABLE DEBT BURDEN

The university's debt burden is moderately high. Including a $13 million balloon maturity in 2022, MADS of $20 million would consume a high 13.6% of fiscal 2014 operating revenues. However, when amortizing the balloon payment adjusted pro forma MADS of $12.8 million would consume a moderately high but manageable 7.5% of fiscal 2014 unrestricted operating revenues. Fitch gains additional comfort from UT's consistently strong debt service coverage. Coverage from fiscal 2014 operations exceeds 2x MADS and exceeds 3x MADS if adjusted to amortize the balloon payment. 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.

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

Additional Disclosures: Fitch's rating relies on certain information provided by SunTrust Robinson Humphrey, Inc. acting as underwriter.

Applicable Criteria and Related Research:

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

--'Revenue-Supported Rating Criteria', dated June 16, 2014;

--'Fitch Upgrades University of Tampa (FL) Revs to 'BBB+'; Outlook Stable', dated 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

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=981684

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Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Committee Chairperson
Emily Wong
Senior Director
+1-415-732-5620
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com