NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to the following bonds issued by the Mississippi Valley State University Educational Building Corporation, MS (EBC):
--$17.1 million revenue refunding bonds, series 2015 (Mississippi Valley State University Facilities Refinancing).
The bonds are expected to price via negotiation the week of Aug. 31, 2015. Series 2015 bond proceeds will be used to advance refund the ECB's series 2007 bonds and to pay costs of issuance.
The Rating Outlook is Stable.
SECURITY
EBC bonds are payable from designated revenues of the eight academic institutions overseen by the Mississippi State Institutions of Higher Learning (IHL), pursuant to a lease agreement. Designated revenues include net tuition, fees, and auxiliary revenues; sales and services; other operating revenues; state operating appropriations; and unrestricted net assets. IHL's obligation under the lease is absolute and unconditional. There is no debt service reserve fund for the series 2015 bonds.
KEY RATING DRIVERS
SOUND SYSTEM FINANCIAL OPERATIONS: The 'AA' rating reflects IHL's sound and stable financial profile, as evidenced by consistently breakeven-to-positive GAAP-based operating performance, a satisfactory level of available funds relative to operating expenses and debt, a diverse revenue base, and state operating and capital support (state of Mississippi rated 'AA+' with a Negative Outlook by Fitch).
INTEGRAL STATE EDUCATION ROLE: IHL members benefit from their important role of providing all four-year public higher education and research services in the state. Additionally, the University of Mississippi Medical Center (UMMC) is a major healthcare provider.
MANAGEABLE DEBT BURDEN: The system's manageable pro forma maximum annual debt service (MADS) burden is a relatively low 3.2% of unrestricted operating revenues, and net operating income regularly provides solid MADS coverage averaging more than 2x since fiscal 2010, including 2.6x in fiscal 2014. Ongoing capital plans for member institutions appear manageable.
RATING SENSITIVITIES
DETERIORATION OF FINANCIAL PROFILE: Material erosion in Mississippi State Institutions of Higher Learning (IHL) system-wide operating performance or balance sheet ratios, which is not anticipated at this time, could pressure the rating. IHL operating and balance sheet ratios are near the low end of peer public universities, factors that are offset by other noted system strengths.
CREDIT PROFILE
Founded in 1944, IHL governs the state's eight four-year higher education institutions: Alcorn State University, Delta State University, Jackson State University, Mississippi State University (MSU), Mississippi University for Women, Mississippi Valley State University (MVSU), University of Mississippi (UM), and University of Southern Mississippi. It also includes UMMC, which is part of UM.
Fitch views the system's historical stability as providing some flexibility to manage enrollment and demographic cycles. Rapid system enrollment growth since 2008 has leveled off in recent years due to lower community college enrollment and thus fewer transfer students, as well as flat to declining numbers of high school graduates in Mississippi. Headcount for the fall 2014 academic term at IHL member institutions was 79,704, or 0.7% less than fall 2013 headcount. FTE enrollment, 70,778 in fall 2014, was essentially flat with the prior year. IHL projects generally stable enrollment in the next several years, supported by aggressive out-of-state recruitment (27% of system headcount in fall 2014 was from out of state) and growth in online learning.
MVSU is located in Leflore County in the Mississippi Delta region. Established in 1950 to train educators for the region, MSVU is one of the federally-designated historically black colleges and universities in the U.S and serves approximately 2,200 students. The university offers comprehensive undergraduate and graduate programs in education, arts and sciences, and professional studies.
MVSU's headcount stabilized in fall 2014 at 2,221 after falling approximately 16% between fall 2010 and fall 2014. The university is renovating offline beds and building out community college partnerships to support enrollment levels, which are expected to remain generally flat in fall 2015.
SOUND FINANCIAL OPERATIONS
IHL's balanced operating performance supports the 'AA' rating. IHL consistently generates breakeven-to-positive GAAP-based operating results, averaging 1.3% over the past five years, including 1.8% in fiscal 2014. Positive results from fiscal years 2010-2014 occurred despite a pressured state-funding environment - state funds declined 10% in that time - and continued declines in federal grants and contracts due to cutbacks and sequestration. However, in a positive turn, state operating appropriations increased by 5.3% in fiscal 2014 and another 4.9% in the current fiscal 2015. The legislature is currently in session for the next fiscal year.
Fitch views IHL as having good revenue diversity. In fiscal 2014, operating revenues included operating appropriations (22.6%), healthcare operations (29.2%), grants and contracts (12.6%, including federal scholarship programs); and student/auxiliary fees (23.9%). Management expects system-wide operating performance for the fiscal year ending June 30, 2015 again to be balanced.
ADEQUATE BALANCE SHEET RATIOS
The system's balance sheet remains consistent with the 'AA' rating category. Available funds (AF), defined by Fitch as cash and investments less certain restricted net assets, totaled $1.2 billion at June 30, 2014, up slightly from fiscal 2013. AF represented an adequate 40.1% of operating expenses and a stronger 88.5% of pro forma debt.
Fitch's AF calculation does not include endowment held in separate foundations. At the end of fiscal 2014, foundation net assets benefiting UM, MSU and USM totaled $1 billion, of which the majority was restricted.
MANAGEABLE DEBT BURDEN
System pro forma debt totals slightly less than $1.4 billion, including bonds, notes, non-cancellable operating leases, and capital leases. Pro forma MADS of approximately $100 million represents a low 3.2% of fiscal 2014 operating revenues. The system's debt portfolio is conservatively structured, with front-loaded amortization and mostly fixed-rate debt. Fitch notes favorably that institutional MADS coverage is regularly around 2x, and was 2.6x in fiscal 2014. Future debt plans appear manageable.
For more information about IHL, please see Fitch's report dated March 18, 2014. A link to the report appears below.
Relevant Committee Date: Dec. 19, 2014
Additional information is available at 'www.fitchratings.com'.
Related Research:
--'Mississippi State Institutions of Higher Learning' (March 18, 2015);
--Fitch Rates S.M. Educational Building Corporation, MS' 2015A&B Revs 'AA'; Outlook Stable' (March 24, 2015);
--'Fitch Rates Mississippi State University Educational Bldg Corp. 2015 Revs 'AA'; Outlook Stable' (March 12, 2015);
--'Fitch Rates Jackson State University Educational Bldg Corp 2015 Revs 'AA'; Outlook Stable' (Feb. 6, 2015);
--'Fitch Rates $936MM Mississippi GO Bonds 'AA+'; Outlook Remains Negative' (Jan. 21, 2015);
--'Fitch Rates Univ of Mississippi Educational Bldg Corp Revs 'AA'; Outlook Stable; Affirms 'F1+'' (Dec. 19, 2014).
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
Related Research
Mississippi State Institutions of Higher Learning
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863543
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990118
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.