NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings on the following Red River Education Finance Corporation (RREFC) higher education revenue bonds issued on behalf of Texas Christian University (TCU):
--$138.6 million higher education revenue and revenue & refunding improvement bonds (TCU project) at 'AA-';
--$130 million higher education variable-rate demand revenue bonds (VRDBs) (TCU project) at 'AA-/F1+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'AA-' rating continues to reflect TCU's consistently positive operating margin, fueled by healthy enrollment trends, and sound balance sheet resources.
--The 'F1+' rating reflects TCU's sound 1.26 times (x) coverage of maximum variable-rate debt obligations (VRDBs, resetting weekly) from immediately available resources, including a bank line of credit dedicated to VRDB support, and cash and investments with daily or weekly liquidity; TCU also maintains additional liquidity in the form of $50 million in operating lines of credit and substantial additional unrestricted investments in its endowment.
--Primary credit risks for the long-term rating include limited revenue diversity and a moderately high debt burden.
KEY RATING DRIVERS:
--Continued generation of operating surpluses driven by enrollment stability and conservative financial management practices.
--Gradual reduction of a moderately high debt burden through financing additional, near-term capital projects with non-debt sources, and paying down a recent interim financing with cash generated by the expected, timely collection of certain capital campaign pledges.
SECURITY:
The bonds are an unsecured general obligation of TCU.
CREDIT SUMMARY:
TCU's unrestricted operating margin, inclusive of the investment spending policy payout, was 5.4% in fiscal 2010 (ended May 31) and has been at least 5.1% for the past five fiscal years. Based on interim results through the first half of fiscal 2011, management anticipates another strong surplus. Strong enrollment growth in recent years and demonstrated pricing flexibility enabling TCU to strategically raise tuition and fees where necessary were the driving factors in the consistent performance. After several years of stable enrollment, full-time equivalents (FTEs) increased steadily in the past two years (8,700 in Fall 2010) due to larger freshmen classes. Recent success for TCU athletic teams helped draw publicity and fueled growth in applications. At the same time, TCU continued to increase tuition and fees (6.3% increase in fall 2010) but also increased its tuition discounting rate (a moderate 34%).
The operating surpluses, along with a rebound in financial markets, helped TCU restore some of the recession-related losses in balance sheet resources. Available funds of $831 million at the end of fiscal 2010 provided sound coverage of 2.9x 2010 operating expenses and 2.1x pro forma debt, inclusive of the full amount of a $120 million interim financing mechanism initiated in December 2010. TCU expects to draw $110 million over the 30-month draw period to fund renovations in and around its football stadium. The university expects to collect on pledges to cover full repayment of the bonds, with all but $20 million expected to be repaid within five years. Currently, TCU has signed pledge agreements in excess of the full interim financing amount. Any outstanding amounts in 2020, when the facility expires, will be paid from university funds.
The primary long-term credit risk is TCU's reliance on student-generated revenues (net tuition and fees and auxiliary revenues, which typically account for 70% of operating revenues), making careful enrollment management essential. The moderately high debt burden is another credit risk, with pro forma maximum annual debt service (when bullet maturities are evenly amortized over their remaining life, and excluding the private placement) equaling 7.4% of fiscal 2010 operating revenues. Fitch expects the burden to moderate further over the next several years, as the school's revenue base grows and no new debt is anticipated.
Located on a 272-acre campus in Fort Worth, TX, TCU is a private co-educational university affiliated with the Christian Church (Disciples of Christ) and Brite Divinity School. The university includes eight schools and colleges, with the largest enrollments at the school of business, college of liberal arts, college of science and engineering, and college of communication. TCU offers a full range of baccalaureate and graduate degrees through the doctorate level.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity', dated Dec. 29, 2009;
'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
'College and University Rating Criteria', dated Dec. 29, 2009;
'Texas Christian University', dated Dec. 18, 2009.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493176
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493170
Texas Christian University (Red River Education Finance Corporation) - higher educ rev rfdg & improv bonds ser 2010
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492328
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