NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'A-' rating on the following series of bonds issued by the Ohio Higher Educational Facility Commission (OHEFC) on behalf of Xavier University (Xavier, or the university):
--$102.1 million OHEFC higher educational facility revenue bonds (Xavier University projects).
The Rating Outlook is Stable.
RATING RATIONALE:
--Xavier's stable positive operating performance, healthy balance sheet resources, and favorable enrollment trends underpin the 'A-' rating.
--Counterbalancing credit factors include an aggressive debt profile with significant variable-rate exposure and a moderately-high, though manageable, debt burden; and substantial revenue concentration in student-generated fees.
--The university's strong financial management practices help offset concerns regarding the potential risks associated with the debt portfolio.
KEY RATING DRIVERS:
--Continued generation of a positive operating margin, and maintenance of balance sheet liquidity at or above current levels.
--Enrollment stability.
--Management of future borrowing to ensure any additional debt is offset with a commensurate increase in resources available for repayment.
SECURITY:
The bonds are secured by all legally available and unencumbered funds of the university.
CREDIT SUMMARY:
The university generated its fourth consecutive positive operating margin in fiscal 2010 (5.7%, inclusive of the endowment payout), and anticipates another positive margin for the current year. The regular operating surpluses allow Xavier to comfortably service its annual debt carrying charges from operations; maximum annual debt service MADS continues to represent a moderately high debt 8.8% of fiscal 2010 operating revenues. Growth in student-generated revenues was the primary driver of the positive margin, as tuition, fees, and auxiliary revenues typically account for a high 75%-80% of operating revenues. Full-time equivalent (FTE) enrollment grew 2% in fall 2010, reaching 6,218, and is expected to continue growing modestly as the university benefits from recent physical plant improvements. Xavier typically budgets for slightly lower enrollment than it expects to achieve and monitors the validity of its projections.
Surpluses generated through active and prudent financial management, as well as recovery in global financial markets, helped Xavier grow balance sheet resources. Available funds improved to $121.2 million at fiscal 2010 year-end. The cushion remains sound, covering 83.9% fiscal 2010 operating expenses and 58.7% of total debt. A modest 25.2% of Xavier's investments at the end of fiscal 2010 were alternative assets, indicating the relative liquidity of the university's available funds.
Variable-rate debt accounts for approximately half of Xavier's outstanding bonds, with the majority hedged through an interest-rate swap. Fitch believes the aggressive debt structure presents credit risk. Swap collateral counterparties are monitored closely, and Xavier has not had to post any collateral to date. The university is considering further diversifying the banks providing the letters of credit supporting its variable-rate bonds, which Fitch would view positively.
Xavier, founded in 1831, is a private, co-educational Jesuit institution located in Cincinnati, Ohio. The university successfully opened its Hoff Academic Quad in fall 2010, which includes two major academic buildings. A new student housing and dining complex is on schedule to open for the fall 2011 semester, completing a significant makeover of the university's physical plant. No new borrowing is planned in the next one to two years.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
--'College and University Rating Criteria', dated Dec. 29, 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs
Applicable Criteria and Related Research:
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493170
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
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