NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the following series of bonds issued by the University of Mississippi (UM) Educational Building Corporation (EBC):
--$29,675,000 revenue bonds, series 2011 (Student Housing Construction Project).
At the same time Fitch affirms the 'AA' rating for the following:
--Approximately $196 million in outstanding MSU EBC bonds;
--Approximately $120 million in outstanding UM EBC bonds.
A negotiated sale is expected on or about the week of Oct. 3, 2011. The proceeds of the bonds will be used to fund the construction of student housing and/or residence halls (including appropriate external infrastructure improvements), pay capitalized interest and issuance costs.
The Rating Outlook is Stable.
SECURITY:
EBC bonds are essentially secured by designated revenues generated by the eight academic institutions that the Institutions of Higher Learning (IHL) represents. Designated revenues include, without limitation, net tuition, fees, and auxiliary enterprise revenues; sales and services; other operating revenues; state appropriations; and unrestricted net assets.
Key Rating Drivers:
Sound Financial Operations: The 'AA' rating is underpinned by solid operating performance fueled by sound demand across the IHL academic institutions, healthy liquidity, and a diverse revenue base.
Key Facilitator of Higher Education: IHL and its member institutions continue to play an essential role in furthering the state's education, research, and healthcare goals.
Solid Management Team: Management's track record of strategic and financial planning is evidenced by its prudent management of capital expansion and associated debt plans, and its ability to moderate the impact of state funding reductions.
Tempered Financial Flexibility: Counterbalancing credit factors include the IHL's moderate reliance on state appropriations and limited ability to mitigate reductions with tuition increases given the state of Mississippi's below-average wealth levels.
CREDIT SUMMARY:
During fiscal 2010, IHL academic institutions and UMMC generated an operating margin of 2.3%, its fourth surplus over the past five years. Preliminary unaudited results suggest this trend will continue for recently completed fiscal 2011. IHL continues to benefit from a diverse revenue base that enables it to withstand deterioration in any one revenue stream. State appropriations remain IHL's largest funding source, accounting for 26% of revenues in fiscal 2010. Healthcare operations and student fees account for the second and third largest revenues shares at 24.6% and 20%, respectively. Due to the volatile state funding environment in Mississippi, the state appropriations share has declined over the past few years, equaling $713 million in fiscal 2010, a 5% decline from fiscal 2009. During fiscal 2011 state appropriations declined a modest 2.5%. Fitch believes that IHL's experienced and proactive management team has demonstrated an ability to withstand appropriations volatility while maintaining strong financial performance. IHL anticipates state funding to be relatively flat in fiscal 2012.
The generation of annual surpluses enables IHL to consistently augment its level of available funds, or cash and investments not restricted. At the end of fiscal 2010, available funds increased to $1.1 billion, representing a sound 37% of operating expenses and 115% of total pro-forma debt. IHL's relatively low debt level is evidenced by a very manageable and stable debt burden (approximately 3% since fiscal 2003). Partially driving the low debt burden is the state of Mississippi's (general obligation bonds rated 'AA+' by Fitch) consistent and significant funding of capital needs for IHL member institutions, including UMMC. State capital appropriations are expected to increase 220%, from $35 million in fiscal 2010 to $103 million, in fiscal 2012.
Founded in 1944, the IHL represents the state's eight academic institutions, including UM, Alcorn State University, Delta State University, Jackson State University, Mississippi State University, Mississippi University for Women, Mississippi Valley State University, and the University of Southern Mississippi. It also includes the University of Mississippi Medical Center, which is part of UM. Enrollment at IHL member institutions totaled 80,859 (based on preliminary results) for fall 2011, increasing, on average, by approximately 2.9% since fall 2006.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Revenue-Supported Rating Criteria, this action was additionally informed by information from Bank of America Merrill Lynch Global Markets, the university's Underwriter.
Applicable Criteria and Related Research:
'U.S. College and University Rating Criteria' (July 14, 2011);
'Revenue-Supported Rating Criteria' (June 20, 2011)
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
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