NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'AA-' ratings on the following bonds:
--$20.3 million Board of Regents of Stephen F. Austin State University Revenue Financing System, revenue refunding bonds;
--$62.4 million Texas Public Finance Authority, Stephen F. Austin State University Revenue Financing System revenue bonds.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by all legally available revenues and fund balances of Stephen F. Austin State University (SFA).
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA-' rating reflects a track-record of positive GAAP-based operating performance and satisfactory balance sheet liquidity. SFA has a moderately high but manageable debt burden.
CONSISTENTLY POSITIVE OPERATIONS: SFA managed well through a period of reduced appropriations and stressed enrollment. Fitch expects positive operating trends to continue following passage of a supportive state budget and stabilized enrollment.
STABLE ENROLLMENT: Enrollment stabilized as expected in fall 2014 after SFA's tightening of admission standards in fall 2012 caused moderate declines. SFA expects incremental growth over the next few years.
MODERATELY HIGH DEBT BURDEN: SFA's debt burden is moderately high, with maximum annual debt service (MADS) consuming 8.3% of fiscal 2014 operating revenues. However, this is manageable due to SFA's conservative debt structure, good coverage from operations, and significant state support for debt service.
RATING SENSITIVITIES
OPERATING TRENDS: The rating assumes that Stephen F. Austin State University will maintain balanced operations and generally stable enrollment. Material weakening of operating trends could reduce debt service coverage and place downward pressure on the rating.
CREDIT PROFILE
SFA is located in Nacogdoches, TX and was established in 1923 as a college for teacher training. Today, it has six colleges offering approximately 80 undergraduate degrees, 40 graduate degrees, as well as doctoral degrees in forestry, educational leadership, and school psychology. SFA intends to increase its focus on science, technology, engineering and mathematics (STEM) fields and was approved in 2014 to offer four-year engineering degrees.
POSITIVE FINANCIAL RESULTS
SFA has generated positive GAAP-based operating margins averaging 2% over past five years, including 2.8% in fiscal 2014. SFA managed well through state appropriation cuts and moderate enrollment declines to maintain positive margins; the university increased tuition, contained expenses, and deferred certain projects. Fitch believes SFA is well-positioned to continue positive operating trends, as state operating support has increased and pressured enrollment has stabilized.
Healthy operating performance has allowed SFASU to maintain a stable balance sheet with satisfactory cushion. As of Aug. 31, 2014, available funds, defined by Fitch as cash and investments less non-expendable restricted net assets, covered 53% of fiscal 2014 operating expenses and 56.6% of pro forma debt (including expected $46 million issuance in mid-2016). These metrics are in line with similarly rated peers.
STABILIZED ENROLLMENT
SFA's enrollment stabilized as expected in fall 2014, following declines in the two prior years. Undergraduate headcount (approximately 86% of total) declined by a moderate 3.2% from fall 2011 to fall 2013 due to a deliberate tightening of admission standards in fall 2012 and large graduating classes. Fitch views increased student retention and quality metrics over that period, as well as stabilized total enrollment and freshman matriculation in fall 2014, as evidence of the strategy's success. SFA expects incremental growth over the medium term, with the fall 2015 incoming class expected to grow slightly over the prior year.
MODERATELY HIGH DEBT BURDEN
MADS consumed a moderately high 8.3% of fiscal 2014 operating revenues. However, MADS coverage from operations remains sound at 1.7x in fiscal 2014 and averaging 1.5x over the past five years. SFA's conservative debt structure (fixed-rate, 20-year amortization, and level-to-declining total debt service) partially mitigates this leverage.
Importantly, 27% of outstanding bonds are tuition revenue bonds (TRBs), which the state historically supports through appropriations, and 3% are constitutional appropriation bonds, supported from the university's annual general revenue appropriations from the constitutionally endowed State of Texas Higher Education Fund. SFA received a $46.4 million TRB authorization in the state's 2016-2017 biennium budget and expects to issue that amount in mid-2016 for a new STEM building. Fitch does not believe that this additional debt changes the university's overall debt profile.
Additional information is available at 'www.fitchratings.com'.
Related Research:
--'Stephen F. Austin State University, Texas' (September 2013);
--'Fitch Rates Stephen F. Austin State Univ, Texas RFS Bonds 'AA-'; Outlook Stable (September 2013).
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. College and University Rating Criteria (pub. 12 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990289
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990289
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.