NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its long-term 'AAA' rating on the following series of bonds issued by the New Hampshire Health and Education Facilities Authority on behalf of Dartmouth College (Dartmouth, or the college).
--$92.8 million variable-rate demand bonds, series 2003;
--$101 million variable-rate demand bonds, series 2002;
--$9.9 million revenue bonds (Dartmouth Education Loan Corporation), series 1999;
--$15.3 million revenue bonds (Dartmouth Education Loan Corporation), series 1998 A & B;
--$9.8 million revenue bonds (Dartmouth Education Loan Corporation), series 1985-1 & 1985-2.
Fitch maintains a short-term 'F1+' rating on Dartmouth's series 2002 variable-rate demand bonds (VRDBs) based on a standby-bond purchase agreement (SBPA) provided by JPMorgan Chase Bank, N.A. Fitch does not maintain a short-term rating on Dartmouth's series 2003 VRDBs.
The Rating Outlook is Stable.
SECURITY
Revenue bonds are an unsecured general obligation of Dartmouth.
KEY RATING DRIVERS
Premier Reputation: The 'AAA' rating continues to reflect Dartmouth's prestigious reputation for academic excellence, demonstrated by strong student demand and highly selective admissions criteria.
Considerable Financial Flexibility: Strong balance sheet liquidity, which has mostly rebounded from market-driven investment loses suffered during the financial crisis of 2008-2009; strong fundraising ability; and diverse revenues also support the rating and provide the college with a healthy financial cushion.
Improved Operations: A positive operating margin in fiscal 2010 and expected positive results for fiscal 2011 due to prudent budgetary actions on the part of Dartmouth's experienced management team offsets recent volatility that resulted in operating deficits in three of the past six fiscal years.
CREDIT PROFILE
Dartmouth's balance sheet liquidity is strong and remains a primary rating driver. The college's investment portfolio has largely rebounded from the significant market-driven investment losses it suffered during the financial crisis of 2008 and 2009. Dartmouth's available funds, defined as cash and investments not permanently restricted, improved to $3 billion as of June 30, 2010, up from $2.75 billion as of June 30, 2009. Available funds covered fiscal 2010 operating expenses ($717 million) and outstanding debt ($945.1 million) by a strong 4.19 times (x) and 3.18x, respectively. While available funds are still just shy of the $3.63 billion reached in fiscal 2007, the college's endowment gained about 19% through May 31, 2011 (unaudited), further improving its liquidity metrics. Similar to many private colleges and universities with like-sized endowments, Dartmouth maintains considerable exposure to alternative, illiquid assets classes. Excluding these assets, Dartmouth's balance sheet liquidity remains solid.
Dartmouth benefits from a diverse stream of revenues, which adds to its financial flexibility. The largest sources are student-generated revenues and investment income (including the endowment distribution), which each accounted for 27% of unrestricted operating revenues in fiscal 2010. Grants and contracts represent the third largest revenues source (23%), followed by gifts and clinical services performed at Dartmouth Medical School, which both contributed about 7% of revenues.
Following two consecutive operating deficits in fiscal years 2008-2009, Dartmouth, as expected, generated a positive 1.6% operating margin in fiscal 2010 (including endowment spending). Operational improvement was the result of several measures taken by management over the past two fiscal years to reduce expenses and grow revenues. Expense cuts included reduced staff headcount, reduced employer benefit contributions, and consolidation of various administrative functions. It enhanced revenues through enrollment growth, tuition increases, and temporary increases in its annual endowment distribution, reaching 7% for fiscal 2010. While a number of these measures were temporary in nature, Fitch feels these prudent actions reflect favorably on management and position Dartmouth to maintain stable operations. The college anticipates another positive operating margin for fiscal 2011 and has begun gradually reducing its endowment distribution; 5.8% for fiscal 2011 and 5.4% expected for fiscal 2012.
Dartmouth's historical debt burden has been low, with fiscal 2010 debt service of $20 million representing just 2.8% of unrestricted operating revenues. However, similar to many highly rated institutions, Dartmouth utilizes bullet maturities for certain debt issues. Dartmouth's strong credit profile and market access mitigate concerns over its ability to refinance bullet payments when needed. The interest rate mode of Dartmouth's bond debt is about 55% fixed-rate and 45% variable-rate. VRDBs are supported by SBPAs provided by commercial banks that expire between April 2013 and February 2014.
Dartmouth has some ongoing capital projects, although no major projects or related debt issuance is planned for the near term. However, it is in the planning stage of a new strategic master plan that may result in debt-financed capital projects over the intermediate term. To maintain its 'AAA' rating Fitch expects Dartmouth to manage any increase in financial leverage without weakening operating performance and/or its financial cushion.
Founded in 1770, Dartmouth is the ninth oldest college in the U.S. and one of the eight schools of the 'Ivy League'. Its campus is situated on 265 acres in Hanover, New Hampshire. For fall 2010, the college had 6,026 full-time equivalent students, with an impressive 11.7% acceptance rate and 51.9% matriculation rate. Applications to the college continue to increase and it anticipates an even more selective acceptance rate for fall 2011 of about 10%.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
'U.S. College and University Rating Criteria' (July 14, 2011);
'Revenue-Supported Rating Criteria' (June 20, 2011);
'Dartmouth College' (Aug. 21, 2009).
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
Dartmouth College (New Hampshire Health & Education Facilities Authority) - var-rate demand bonds ser 2002, 2003, 2007
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=463050
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