Fitch Rates University of North Texas System Series 2009 Revs 'AA-'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the approximately $39,385,000 Board of Regents of the University of North Texas System, revenue financing system bonds, series 2009. The bonds are scheduled to sell via negotiation during the month of January. Fitch also affirms the 'AA-' rating on the Board of Regents of the University of North Texas System's (the system's) approximately $255.7 million of outstanding revenue financing system (RFS) bonds, and the short-term 'F1+' rating on the system's $100 million commercial paper (CP) program. The Rating Outlook is Stable.
The series 2009 bonds, which rank on parity with outstanding RFS bonds and CP notes, are secured by pledged revenues which include all legally available revenues, funds, and balances of the system. The pledge excludes state appropriated funds and restricted funds. Proceeds of the series 2009 bonds will be used to finance various capital improvements to the University of North Texas (UNT) Health Science Center, refund outstanding CP notes, fund a capitalized interest fund, and to pay various costs of issuance.
The 'AA-' rating primarily reflects the system's stable student demand and steady enrollment growth; consistently positive operations; and strong state support for both general and capital purposes (State of Texas general obligation debt rated 'AA+' by Fitch). Credit concerns include the system's limited fundraising history; competitive operating environment; and the potential financial and operational complexities involved with transitioning the Dallas campus from an operating unit of UNT to a stand-alone university. Fitch will monitor this transition and any potential impact on the system's credit profile. At present, Fitch does not expect the transition to erode the system's historic financial strengths, including operating margin and liquidity.
Due to favorable demographics in Texas, especially surrounding the Dallas-Fort Worth area, the system benefits from stable student demand and steady, though moderate, enrollment growth. Full-time equivalent (FTE) enrollment increased 13.5% from fall 2004 to fall 2008. Fall 2008 FTE's were 28,112 up slightly from 27,921 in fall 2007. Applications received increased 5.7% for fall 2008 to 13,055. While it faces competition from several public universities in Texas, the system's tuition rates fall in the lower range among the state's large research universities. Furthermore, board designated tuition rates are no longer regulated by state Legislature and may be increased by the system as needed to support operations.
The system has maintained consistently positive operations, with an average operating margin of 9.2% over the past five fiscal years; 9.1% in fiscal 2008. Positive operations have been driven in part by enrollment growth and tuition increases. State appropriations and student generated revenues represent the system's two largest funding sources, each accounting for approximately 35% of operating revenues in fiscal 2008. Total appropriations were $239 million in fiscal 2008, a 15.7% increase from fiscal 2007. The system does not anticipate any reductions to state funding in the near-term.
A further strength of the system is its solid liquidity, with available funds of $337.9 million in fiscal 2008. While down slightly from fiscal 2007, available funds increased 59% from fiscal years 2004 to 2008. For fiscal 2008, available funds represented 53.8% of operating expenses and 111.8% of pro forma debt. As its capital plans progress, Fitch expects the system's available resources to grow commensurate with the level of debt incurred. After issuance of the series 2009 bonds, pro forma debt will total approximately $302.3 million, with maximum annual debt service (MADS) increasing to approximately $27.2 million. The system's debt burden remains manageable, with MADS representing a moderate 3.9% of fiscal 2008 operating revenues.
The short-term 'F1+' rating is based on the system's own internal liquidity, primarily supported by its significant level of highly rated, highly liquid investments. The most liquid of the system's investments are held in the state's money market fund, TexPool. As of Nov. 30, 2008, the system had $214.6 million invested in TexPool. The system has an internal policy which requires it to maintain a minimum TexPool balance equaling 1.2 times (x) the amount of CP notes outstanding. As of Nov. 30, 2008, the system's TexPool funds covered its outstanding CP of $23.1 million by 9.3x, or 2.1x the total authorized CP limit of $100 million.
The system was established in 1890 and consists of three units; UNT, UNT Health Science Center, and UNT System Administration. Located in Denton, TX, UNT is the system's flagship institution and with over 33,000 students is the fourth largest university in the state.