Fitch Rates Stephen F. Austin State Univ (Texas) $23MM RFS Bonds 'A+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns a rating of 'A+' to approximately $23 million of Texas Public Finance Authority Revenue Financing System (RFS) revenue bonds, series 2009, issued on behalf of Stephen F. Austin State University (SFASU). The bonds are scheduled to sell competitively on or about Jan. 14, 2009.

At the same time, Fitch affirms the unenhanced, long-term 'A+' rating on approximately $133.2 million of SFA's outstanding parity RFS bonds. RFS bonds are secured by and payable from a pledge of all legally available revenues and fund balances. The pledge excludes state appropriations and other restricted funds of SFASU. The Rating Outlook is Stable.

The 'A+' rating is primarily anchored by SFASU's historically healthy liquidity; track record of generally balanced to positive operating performance; and experienced, proactive management team which has made significant investment in both facilities and programs to position SFASU in a highly competitive marketplace. Primary credit concerns include a high pro-forma debt burden relative to other similarly rated public universities and a price sensitive market which limits SFASU's ability to materially increase tuition and fees to offset its increased debt carrying charges and rising costs associated with its expanded and upgraded campus. Importantly, approximately 36% of SFASU's RFS debt, including the series 2009 bonds, is classified as tuition revenue bonds (TRBs) and is thus eligible for an appropriation offset from the state of Texas (general obligation bonds rated 'AA+' by Fitch).

SFASU's financial leverage has increased significantly over the past five fiscal years and has stressed fiscal 2008 available funds as a percentage of pro-forma leverage (including the series 2009 RFS debt) to 49.9%, the lowest level in five years. Importantly however, this debt financed critical improvements to academic and residential life space enabling SFASU to bolster enrollment levels and restore operating margins.

While no additional debt is immediately contemplated, SFASU plans to submit additional proposals to the state for TRB financings of academic buildings, including a new chemistry building. While debt service on this project would be supported by a like increase in its appropriation level, a commensurate rise in available funds, which is essentially SFASU's liquidity cushion, would be expected at the current rating level. Failure to do so could yield rating and/or outlook pressure.

For fiscal 2008, SFASU generated an operating margin of 3.5%, which is in-line with prior years, except for fiscal 2007 which was impacted negatively by several one time items. Fall 2008 enrollment levels increased by 3.3% over fall 2007, to 11,990, which is SFASU's highest headcount in over ten years. While SFASU's enrollment profile tends to be somewhat variable, with increases in some years offset by decreases in others, Fitch expects headcount to be generally stable over time. Going forward, improvements to graduation and retention rates, both of which lag other similarly rated public universities, will be management's primary enrollment focus.

Proceeds of the series 2009 RFS bonds will be applied by SFASU to fund the construction of a new school of nursing ($13 million) and address deferred maintenance needs ($10 million). Nursing is one of SFASU's fastest growing majors within its School of Science & Mathematics and is a priority for the state.

SFASU, located in Nacogdoches, Texas, was established in 1923 as a college for teacher training. Today, it has six colleges -- Business, Education, Fine Arts, Forestry and Agriculture, Liberal and Applied Arts, and Science and Mathematics -- offering 83 baccalaureate degrees in over 120 subject areas, masters degrees in 46 areas, and, doctoral degrees in Forestry and Education.

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