Fitch Affirms Maryland Institute College of Art $83.5MM Revs at 'BBB+'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the unenhanced 'BBB+' rating on the Maryland Health and Higher Educational Facility Authority's (MHHEFA) approximately $83.5 million revenue bonds, Maryland Institute College of Art (MICA, or the college) issue, series 2007, 2006 and 1998. The Rating Outlook on all bonds is Stable.

The 'BBB+' rating reflects MICA's favorable demand trends due to its unique niche as a premier art and design school, adequate balance sheet liquidity, and an experienced and conservative management team. Primary offsetting credit risks include high reliance on student-generated revenues (typical for private colleges and universities at this rating level) and a high, though lessened, debt burden. Fitch expects that enrollment will remain relatively steady and operating performance should continue to remain positive as the college's most significant recent capital project (the Gateway, a multi-use building including new dorm rooms, a black box theater, and various student and administrative facilities) was officially opened during fiscal 2009 and began generating additional revenues. New debt is not currently anticipated, and any future issuance would need to be matched with a commensurate increase in financial resources.

Headcount enrollment at MICA has grown steadily over the past five years to 1,919 students in fall 2009, from 1,500 in fall 2005. The growth has been mainly in undergraduates, which increased more than 3% annually, while graduate enrollment has been essentially flat. Student-generated revenues (net tuition and fees, and auxiliary revenues) remain a key revenue stream for the college, representing a high 83.2% of fiscal 2009 revenues, reflecting the importance of careful enrollment management. Like many private colleges and universities, MICA's administration was concerned about the potential impact of the recession on student demand. The college increased acceptances and tuition discounting, which resulted in MICA's largest-ever freshman class this fall. Management plans to return tuition discounting to historical levels, and does not anticipate any notable decline in enrollment, given the college's growing reputation as a fine arts and design school and the improved amenities, including those in the recently completed Gateway.

MICA's balance sheet resources at the end of fiscal 2009 provided satisfactory coverage of operating expenses (59.4%) and long-term debt (43%). While these ratios are weaker than the 2008 ratios (88.2% and 61%, respectively), most of the decline is attributable to severe market turbulence. The college's board recently approved an increase in the endowment's exposure to alternative assets to 33% from 20%. Fitch notes that this change will be implemented gradually, and it places increasing importance on the college's ability to closely manage its liquidity profile as alternative assets tend to be much more illiquid. MICA's debt burden remains high with maximum annual debt service (MADS) of $5.7 million equaling 9.1% of fiscal 2009 operating revenues. The burden has declined since MICA's last issuance in 2007 due to consistent revenue growth. The operating margin was 3.7 % in fiscal 2009 (as calculated by Fitch from the audited statement of activities and with additional detail provided by the college regarding net assets released from restrictions for operations), and was closer to breakeven in the prior year (0.3%). For fiscal 2010, the college took a proactive approach to potential financial challenges by developing plans for multiple rounds of budget cuts, dependent on fall enrollment. In addition, the adopted 2010 budget includes an approximately 2.7% contingency reserve (up from the 1.75% percentage reserve in 2009), and the college doubled the size of an available line of credit to $6 million as a precautionary move.

MICA was chartered in 1826 by the Maryland General Assembly and is one of the nation's oldest private colleges specializing in the visual arts. The college grants undergraduate and graduate degrees, and also includes a continuing education division. The campus is located in the Bolton Hill section of Baltimore, which is about 15 blocks north of the Inner Harbor and also is known as the Mount Royal Cultural District. The Lyric Opera House, the Meyerhoff Symphony Hall of the Baltimore Symphony Orchestra, and the University of Baltimore are within close proximity.

An error was found in the rating on Fitch's web site for the bond listed below:

--Maryland Health & Higher Educational Facilities Authority (MD) (Maryland Institute College of Art) rev bonds ser 2006.

The rating for the above bond was entered in Fitch's ratings database as series 2005. The bond is in fact series 2006. The bond series now appears correctly on Fitch's web site at 'www.fitchratings.com'.

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

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.