Mar. 18, 2010 (Business Wire) -- Fitch rates the following Midwestern State University, Texas' (MSU) revenue financing system revenue bonds:
--$6.7 million series 2010, 'A+'.
The bonds are expected to sell competitively on April 7, 2010. Bond proceeds will be used to finance the renovation of the existing D.L.Ligon Coliseum and pay costs of issuance.
In addition, Fitch affirms the following ratings:
--$80,240,136 revenue financing system revenue and refunding bonds at 'A+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The rating reflects satisfactory debt service coverage with pledged revenues, stable liquidity levels and breakeven to positive margins, reflecting satisfactory operating performance.
--MSU has experienced growth in enrollment and corresponding student revenues as a result of repositioning itself as a selective, liberal arts focused public university.
--MSU financial operations benefit from relatively stable operating support from the State of Texas (general obligation [GO] bonds rated 'AA+').
KEY RATING DRIVERS:
--Continued enrollment growth and regular modest tuition increases to offset any volatility in state appropriations.
--Maintenance of breakeven to positive operating margins.
--Future debt issuance, though none is immediately planned, is to be offset by a corresponding increase in financial resources available for its repayment.
SECURITY:
The bonds are secured by pledged revenues which include all legally available funds of the university, including unrestricted fund and reserve balances.
CREDIT SUMMARY:
MSU revenue financing system (RFS) debt is secured by pledged revenues; fiscal 2009 pledged revenues increased 5.5% from fiscal 2008 and covers proforma MADS by a strong cushion of 7.1 times (x). The current issue is being sold to finance the renovation of the D.L.Ligon Coliseum and debt service (DS) is expected to be paid from revenue derived from an athletic use fee. DS for the current issue is structured to be less than $500k, annually.
Enrollment for MSU increased in fall of 2008 and 2009, and is recovering after declines in 2006. Management reports the declines stemmed from tighter admission standards and rapid increase of student tuition, the ability for which was available to MSU before 2005 but not employed consistently. For fall 2009, the acceptance rate increased by 15% and the matriculation rate decreased slightly to 47%. The change in standards for MSU was part of a deliberate repositioning to become a high quality public liberal arts university. MSU is currently the only designated public liberal arts university in the State. The result of the tighter admissions standards resulted in fewer remedial classes required for incoming freshman while markedly improving first year retention rates to 75% in 2008 from 60% in 2005.
Operating margins for both fiscal 2008 (1.4%) and 2009 (4.1%) demonstrate improved financial performance from a weak fiscal 2007 resulting from declines in enrollments, state funding and increased utility and benefits costs. The ability for MSU to maintain positive operating margins is based on regular tuition increases and continued funding support from the state for operations. While no guidance has been given for state appropriations for the next biennium, MSU has been requested to study the effects of a 5% funding reduction for the future years. MSU anticipates adjustments to staffing as well as general expenditure cuts to offset the loss of funds.
Liquidity remains relatively stable at MSU. Available funds of $39.7 million comprise 52% of operating expenses and 43% of total pro forma debt. MSU has long-term debt totaling $92.4 million, inclusive of the current bond issue. Pro forma long-term debt balances include RFS debt (including the bonds) of $86.9 million and constitutional appropriation bonds of $5.52 million. MSU's debt burden is high at 8.5%.
MSU originated in 1922 as Wichita Falls Junior College, the first municipal college in Texas. MSU is located 120 miles northwest of the Dallas/Fort Worth area and has about 6,341 students.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:
'College and University Rating Criteria', Dec 29, 2009;
'Revenue-Supported Rating Criteria', Dec 29, 2009.
Additional information is available at 'www.fitchratings.com'.
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