NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the long-term rating to 'A-' from 'BBB+' on $12.4 million of civic facility revenue bonds issued by Albany Industrial Development Agency on behalf of Albany College Pharmacy and Health Sciences (ACPHS). The Rating Outlook is revised to Stable from Positive.
SECURITY
The bonds are secured by a pledge of gross revenues and a mortgage lien and security interest in the student center and library building.
KEY RATING DRIVERS
RATING UPGRADE: The upgrade to 'A-' from 'BBB+' reflects significant increases in the college's financial cushion, supported by prudent financial management and a favorable demand profile.
UNIQUE NICHE SUPPORTS ROBUST MARGINS: Solid demand for ACHPS' pharmacy and health-related programs fuels consistently positive operating performance. Counterbalancing factors include limited revenue diversity and exposure to risks associated with variable rate debt obligations.
MANAGEABLE DEBT PROFILE: ACPHS' debt burden remains moderate, with no plans for debt-supported projects in the near term. Fairly significant exposure to variable rate debt and derivatives is partially mitigated by the college's track record of managing the various risks associated with these instruments.
CREDIT PROFILE
Through prudent financial management and favorable student demand, ACPHS has consistently generated double-digit operating margins over the past five years, including a robust 11% in fiscal 2011. Strategic reinvestment of these surpluses over the past five fiscal years has allowed available funds, defined as cash and investments not permanently restricted, to more than double. As of June 30, 2011, available funds totaled $34.4 million, representing a solid 83% of fiscal 2011 operating expenses ($41.1 million) and 108.3% of total pro forma long-term debt ($31.7 million, inclusive of non-cancellable operating leases).
FTE enrollment grew at an average annual rate of 3.2% over the past five years to 1,629 students in fall 2011, partially offsetting concerns related to the college's significant reliance on student-generated revenues (83.7% of fiscal 2011 operating revenues). ACPHS' stable demand profile is supported by a generally level application volume that continuously yields a relatively constant number of incoming first-year students. Importantly, the college's freshmen-to-sophomore retention rates have remained adequate in recent years, suggesting continued student satisfaction and bolstering overall enrollment stability.
The college's debt portfolio is fairly aggressive, as variable rate demand bonds (VRDBs) account for 52.1% of total long-term debt. Outstanding VRDBs are fully supported by irrevocable, direct pay letter of credit (LOC) provided by TD Bank, NA (long-term Issuer Default Rating (IDR) of 'AA-' and short-term IDR of 'F1+' by Fitch). Additionally, 79.9% of ACPHS' VRDBs are hedged by interest rate swaps provided by TD Bank, NA which mature within the next three years.
ACPHS's leadership team has historically demonstrated prudence in addressing the risks attendant to its outstanding VRDBs. Management successfully renegotiated an LOC extension in 2009, finalizing the new agreement well in advance of its stated maturity. Fitch expects management to address the expiration of its existing LOC in 2014 in a similar manner. The college is in the process of conceptualizing the appropriate long-term capital structure following the expiration of both of its interest rate swap agreements. Fitch will actively monitor this aspect of the credit.
ACPHS was founded in 1881 and is the oldest pharmacy school in New York State. The college offers undergraduate programs in pharmacy, pharmaceutical sciences, chemistry, health and human sciences and biomedical technology. In addition to offering several master's degree programs, the college offers a doctor of pharmacy at its Colchester campus in Vermont, the only pharmacy program in the state.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria', dated June 20, 2011;
--'U.S. College and University Rating Criteria', dated July 14, 2011;
--'Fitch Affirms Albany College of Pharmacy and Health Sciences, NY Revs at 'BBB+'; Outlook to Positive', dated April 29, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
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