CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns an 'A' rating on approximately $40 million of revenue refunding bonds series 2013 (the bonds) issued by the Illinois Finance Authority (IFA) on behalf of DePaul University (DePaul, or the university).
The bonds will be sold competitively on or about the week of May 6th and the proceeds will be used to refund DePaul's outstanding series 2004C bonds.
At the same time, Fitch affirms the rating on approximately $307 million of outstanding IFA revenue bonds issued on behalf of DePaul.
The Rating Outlook is Stable.
SECURITY
The bonds are an unsecured general obligation of the university.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'A' rating reflects DePaul's history of positive operations with surpluses that supplement balance sheet resources and generally stable enrollment levels. The aforementioned continue to be offset by a high reliance on student derived revenues.
HISTORY OF OPERATING SURPLUSES: The university has generated consistently positive operating margins for over a decade. Though the margin trend has declined over the past few years, DePaul continues to produce an operating surplus every year and expects the results for fiscal 2013 to be similar.
MANAGEABLE DEBT BURDEN: As a result of the refunding, DePaul's proforma maximum annual debt service (MADS) declines to 5.2% of fiscal 2012 operating revenues. The MADS burden is manageable and coverage derived from net income available from operations is adequate at 2.9x.
RATING SENSITIVITIES
LACK OF REVENUE DIVERSITY: DePaul's reliance on student derived revenues is above average for the rating category therefore stability in enrollment levels is required to maintain operational balance.
CREDIT PROFILE
Located primarily in the downtown Loop district and Lincoln Park areas of Chicago, Illinois with four satellite campuses, DePaul is a co-educational institution offering 123 undergraduate and 175 graduate/professional degree programs. Founded in 1898, DePaul is the largest Catholic educational institution and the ninth largest private institution in the United States.
OPERATING MARGINS OFFSET TUITION DEPENDENCY
DePaul's operating performance is stable and has generated a positive margin in each year over a decade of operations reviewed; while the margin has narrowed over the past five years DePaul's operations still produce healthy surpluses. Acknowledging DePaul's high dependency on student-generated income (92.3% of total 2012 unrestricted operating revenues) Fitch views the university's generally stable enrollment levels in a highly competitive local operating environment and a consistently positive margin trend as appropriate offsets.
UNDERGRADUATE HEADCOUNT BALANCES GRADUATE DECLINE
Undergraduate headcount for fall 2012 totaled 16,498 students and reflected a record high of nearly 2,600 incoming freshmen. While overall headcount for fall 2012 was lower than fall 2011 (25,398), the university has reported year over year improvement in freshmen and transfer applications for fall of 2013. Housing stock for DePaul is fully subscribed. The university has additional capacity at affiliated student housing project, University Center of Chicago (UCC, rated 'BBB+'by Fitch) which can be utilized as need arises.
Decline in graduate and professional demand is offset by a 40% growth in freshmen applications over the past five years. DePaul has been able to temper acceptance rates slightly during the same time. Fitch expects the university's modestly growing demand profile to support balanced operations and modest growth in liquidity.
STABLE LIQUIDITY
Positive operating surpluses have enabled the university to add liquid resources to its balance sheet. DePaul's endowment investment allocations remain somewhat conservative with less than 17% in alternative assets and fiscal year returns to date exceeding fiscal 2012 levels. Available funds, defined as unrestricted cash and investments, totaled $512 million as of fiscal 2012 and constituted a healthy 99% of total operating expenses and 155% of total debt; the university's unrestricted financial cushion is more than adequate for the rating level.
FUND RAISING CONTINUES
DePaul's current fund raising campaign has been progressing well. The campaign has been successful and raised its $250 million goal ahead of time which drove the university to raise the goal to $300 million. Having raised over $270 million to date, DePaul expects to achieve its goal by the campaign end-date of July 2014.
MANAGEABLE DEBT BURDEN; STRONG DS COVERAGE
Long term debt outstanding for the university totals $330 million. Fitch's includes capital leases and mortgage notes in addition to bonds when calculating the university's debt. The university's MADS post issuance will account for 5.2% of historical operating revenues and MADS coverage from fiscal 2012 operations equals 2.9x. The university does not have immediate new debt plans but will review the ability to reduce its annual debt burden by refinancing outstanding debt as appropriate. Additionally, DePaul expects to invest in several strategic areas via its six year strategic plan called Vision 2018. Fitch expects DePaul to preserve its financial flexibility over the long term by aligning future capital spending plans with available resources.
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' (June 12, 2012);
--'College and University Rating Criteria' (May 25, 2012);
--'Fitch Affirms DePaul University, IL Revs at 'A'; Outlook Stable' (Dec. 7, 2012).
Applicable Criteria and Related Research
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679152
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