Fitch Affirms Widener University (PA) Revs at 'A-'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'A-' rating on $83 million of outstanding Pennsylvania Higher Educational Facilities Authority revenue bonds (series 2013, 2013A, and 2014) issued on behalf of Widener University (Widener, or the university).

The Rating Outlook remains Stable.

SECURITY

The bonds are a general obligation of Widener.

KEY RATING DRIVERS

RECENT OPERATING PRESSURE: Widener has a long track-record of profitability, although the university's adjusted 1.1% operating margin in audited fiscal 2015 lags the 'A' category median. Moreover, Widener is expected to record an operating loss in fiscal 2016. Continued enrollment declines at the law schools and increasing financial aid were the leading contributors to the operating challenges.

MANAGEABLE CAPITAL PLANS: Widener's capital spending plans are manageable, with no major construction projects planned in the near term.

MANAGEABLE DEBT BURDEN: Widener's debt coverage remains sound despite modest operating profitability in fiscal 2015. In fiscal 2015, maximum annual debt service (MADS) coverage measured 2.5x and MADS burden measured 4.3%, both better than the 'A' category medians. The university has no new money debt plans in the near term.

THIN LIQUIDITY: Widener's liquidity ratios are somewhat thin at the 'A' rating category. At audited fiscal year end (FYE) 2015, available funds covered unrestricted operating expenses and debt 60% and 102%, respectively, both below 'A' category medians. Due to recent investments in key programs and negative investment returns, available funds are expected to decline in fiscal 2016.

RATING SENSITIVITIES

RETURN TO PROFITABILITY: Widener University's rating and maintenance of the Stable Outlook are based on Fitch's expectation that the university will be profitable in fiscal 2017 (and beyond) and that the university will improve liquidity and debt coverage ratios over time. Failure to improve operating margins significantly in fiscal 2017 likely will pressure the Outlook and rating.

CREDIT PROFILE

Widener is a private university originally founded in Wilmington, DE, in 1821. Widener offers liberal arts and science degrees for undergraduate, graduate, and professional students at its main campus in Chester, PA, as well as its auxiliary campuses in Wilmington, DE and Harrisburg, PA. Total fall 2015 headcount enrollment was 6,218. Widener is accredited by the Middle States Commission on Higher Education, which last renewed its accreditation in 2012 for a period of 10 years.

Widener operates two separate law schools, including Delaware's only law school. In 2015, Widener separated and rebranded its two law school campuses: the Delaware Law School in Wilmington, DE (which was the name of the school prior to the merger with Widener); and the Commonwealth Law School in Harrisburg, PA. New Deans were hired for the two law schools in 2015.

RECENT OPERATING PRESSURE

Widener has a long track-record of recording positive operating margins. While profitability continued in fiscal 2015, the adjusted operating margin measured a modest 1.1% (including endowment payout). This compares unfavorably to the 'A' category median adjusted operating margin of 4.4%. Moreover, the university is expected to record an adjusted operating loss in fiscal 2016.

The leading factors contributing to the operating challenges were continued enrollment declines at the law schools (and associated investments to stabilize the law programs) and increasing financial aid (much of which was directed to law students). Similar to law programs across the country, Widener's law schools have suffered significant enrollment declines in recent years; between fall 2011 and fall 2015, law school enrollment dropped 45% to 796. Over the same time period, tuition discounting increased from 27% to 39%, which includes a recent sharp increase in law school tuition discounting with the guidance of an outside consultant.

Looking forward, management expects Widener to be profitable in fiscal 2017 and beyond. The university has implemented considerable cost savings at its law schools and enrollment growth in fall 2016 is expected in most key programs, including the law schools. Failure to return to record adjusted profitable results in fiscal 2017 and beyond likely will pressure the Outlook and rating.

THIN LIQUIDITY FOR THE RATING CATEGORY

Widener's liquidity ratios are somewhat thin compared to 'A' category medians. At FYE 2015, available funds (Fitch defines as cash and investments, net of permanently restricted net assets) totaled $88 million. Available funds/operating expenses measured 60% ('A' median is 114%) and available funds/debt measured 102% ('A' median is 117%). Available funds are expected to decrease at FYE 2016, as Widener made investments in key programs and realized investment losses. As operating results are expected to return to profitability in 2017 and given the university's limited capital spending plans, Fitch expects Widener's liquidity ratios to improve in the future. Furthermore, Fitch expects Widener to benefit from the university's increasing focus on fundraising, leveraging the success of the recent capital campaign, which exceeded the $58 million goal by $7 million.

MANAGEABLE DEBT BURDEN

Widener's debt burden and debt coverage remain adequate, despite recent operating challenges. In fiscal 2015, MADS burden measured 4.3% ('A' median is 7.2%) and MADS coverage measured 2.5x ('A' median is 1.8x). Even with expected operating losses in fiscal 2016, Fitch expects Widener's debt ratios to remain adequate. The university has no new money debt plans in the near term; consequently, debt coverage ratios should improve as operating margins rebound.

MANAGEABLE CAPITAL PLANS

Favorably, Widener's capital spending plans are manageable in the coming years, which should allow the university to grow liquidity. Widener does not have any major construction projects planned in the near term, and therefore construction risks to operations should be limited.

Management is focused both on long-term strategy execution and short-term efficiency gains/cost controls. As of January 2016, Widener has a new president, formerly the president of Edinboro University (PA), who has many years of experience in private and public higher education. The university board is stable and has significant business expertise, which Fitch believes provides sound oversight of Widener's financials and long-term vision.

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

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=1009558

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009558

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Mark Pascaris
Director
+1-312-368-3135
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Mark Pascaris
Director
+1-312-368-3135
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Tipper Austin
Associate Director
+1-212-908-9199
or
Committee Chairperson
Joanne Ferrigan
Senior Director
+1-212-908-0723
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com