Fitch Affirms 'BBB' Rating on Southern Wesleyan University, South Carolina Revs; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings affirms the 'BBB' rating on Southern Wesleyan University's (SWU,
or the university) outstanding $13.2 million education facility revenue bonds,
issued by the Education Facilities Authority for Private Nonprofit Institutions
of Higher Learning (South Carolina). The Rating Outlook is Stable.

The 'BBB' rating reflects SWU's long track record of operating surpluses, a
reliable source of gift revenues from the Wesleyan Church, adequate liquidity,
declining debt burden, and effective financial management. A primary credit
concern is the university's enrollment declines as it is dependent upon
student-generated revenues. Fitch notes that while the university's small size
limits its operating flexibility and the ability to mitigate significant
declines in student demand, management has shown its ability to successfully
manage SWU's enrollment resources to maintain a stable financial profile.

The university has a history of positive operating margins, with an average
margin of 4.5% over the last six fiscal years. Its fiscal 2008 operating margin
was 4.7% despite a sharp increase in tuition discounting. The university's
fiscal 2008 unrestricted operating revenues grew 7.4% to approximately $24
million. The increase primarily reflects increased tuition and fee charges.
SWU's revenue base is concentrated, as student-generated fees represented 87% of
total fiscal 2008 revenues. In fiscal 2007, SWU implemented a fee system that
differentiates between its educational programs and provides the university some
pricing flexibility. While traditional undergraduate program fees increased 5%,
in fall 2008 the university implemented a steeper 9% increase for its popular
adult and graduate studies (AGS) graduate program and a moderate 3.8% increase
for its AGS undergraduate program. SWU's second largest revenue source is the
support it receives from the Wesleyan Church, representing 6.3% of fiscal 2008
revenues.

SWU's liquidity remains satisfactory and is consistent with Fitch's medians for
'BBB' rated private universities. Available funds, cash and investments that are
not permanently restricted, declined to $6.9 million as of June 30, 2008,
representing 30.1% of operating expenses and a solid 58.4% of total outstanding
debt. The decline in liquidity is attributable to the 2008 completion of a
chapel and fine arts building which were financed by donations and internal
funds. Fitch believes that the university's positive operating cash flow,
conservative investment practices, and minimal capital needs will act to limit
further resource dilution. Maximum annual debt service (occurring in 2009) of
$1.1 million consumed a manageable 4.6% of fiscal 2008 revenues. SWU's debt
burden will further lighten, as debt service is expected to decline to
approximately $1 million for the remaining life of the outstanding bonds, and
the university has no plans for additional debt or capital projects.

Although SWU's traditional student and graduate enrollment levels have been
relatively stable, the university's total enrollment has been negative for the
last three academic years. In total, the university's fall 2008 FTE enrollment
declined 2.1% to 2,373 students from fall 2007, 7.8% below its fall 2005
enrollment of 2,574. The drop is primarily due to enrollment losses in SWU's AGS
undergraduate program that have not been fully offset by increases in its AGS
graduate program and traditional undergraduate population. Enrollment in the AGS
undergraduate program has declined an average of 6.75% annually since fall 2004,
while enrollment in the AGS graduate program grew an average of 5.37% annually.
SWU's core FTE undergraduates have grown 12.25% to 614 students since fall 2004,
despite a 4.1% decline in fall 2008. The decline came after a large 19% increase
in fall 2007.

SWU was founded in 1906 and is a Christian liberal arts university, related to
the Wesleyan Church. SWU is located on 230 acres in upstate South Carolina in
the town of Central, between the cities of Clemson and Easley.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, 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 Ratings, New York
Mary Catherine Messner, CFA, FRM, +1-212-908-0738
Douglas Kilcommons, +1-212-908-0738
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

Copyright Business Wire 2009