Fitch Affirms Linn State Technical College's (Missouri) Revs at 'BBB-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'BBB-' rating on approximately $8.6 million of Linn State Technical College (the college) Auxiliary System refunding and improvement revenue bonds, series 2006. The Rating Outlook is Stable.

The bonds are secured by the net revenues of the college's auxiliary system. Bond covenants include a debt service reserve fund and a rate covenant, which states the net revenues of the college's auxiliary system shall not be less than 125% of the annual principal and interest payments on the bonds.

The 'BBB-' rating primarily reflects the college's consistently sound debt service coverage from pledged revenues, stable enrollment, diversity of revenue, stable state funding (State of Missouri general obligation debt rated 'AAA' by Fitch), and limited competition. Credit concerns include the college's weak liquidity, volatile and typically negative operating margin, and its small size which limits operating flexibility.

The college maintains sound debt service coverage. Unaudited fiscal 2008 net auxiliary system revenues of $1.8 million covered maximum annual debt service (MADS) of $837,813 by a solid 2.2 times (x). The college's debt burden remains manageable with MADS representing a low to moderate 4.4% of unrestricted operating revenues in fiscal 2008. The college had total debt outstanding of approximately $10 million as of June 30, 2008 and has no additional debt plans at this time. The college's balance sheet liquidity remains weak. Available funds of $4.4 million represented a low 21.9% of operating expenses and 43.8% of total debt for fiscal 2008.

The college's operating margin has been volatile over the past five fiscal years, ranging from a low of negative 6.3% in fiscal 2004 to a high of 3.7% in fiscal 2007. The margin was a negative 5.6% in unaudited fiscal 2008. While the operating margin is weak, the college benefits from a relatively diverse, albeit small, revenue base. The three largest revenue sources were tuition and auxiliary revenues (37.3%), grants and contracts (26.3%), and state appropriations (25.4%). State appropriations increased 6.2% in fiscal 2008 to $4.8 million and are expected to increase to $5.2 million for fiscal 2009. However, due to the current economic environment, the college anticipates state funding to weaken for fiscal 2010.

While the college's headcount enrollment was stable over the past few years, enrollment growth was stagnant from fall 2003 to fall 2007. However, fall 2008 enrollment grew a significant 11.5% to 973 students from 873 students in fall 2007. The spike in enrollment is attributed to the college increasing its recruiting efforts, offering new dual-credit courses, and the opening of the new student activity center in fall 2007. The college also faces limited competition due to its unique program offerings. Additionally, the college partners with business and industry representatives to assess the economic needs of the state and provide a curriculum to meet the needs of the state's workforce.

Founded in 1961, Linn State Technical College is a vocational and technical school located in Linn, Missouri. It offers programs in civil, computer, industrial, and transportation technology, as well as, arts and science programs.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.