TEXT-Fitch rates University System of Maryland revs 'AA+'
Oct 4 - Fitch Ratings assigns an 'AA+' rating to the University System of Maryland's (USM) $115 million auxiliary facility and tuition revenue bonds (AFTRB) 2012 series C and $58.815 million AFTRB 2012 refunding series D bonds. A competitive sale is expected on or about Oct. 11, 2012. Proceeds of the bonds will be used to fund various, system-wide facilities renewal, expansion and construction projects, refinance a portion of the system's currently outstanding debt obligations and pay various costs of issuance. In addition, Fitch affirms the 'AA+' rating on $1.03 billion in currently outstanding AFTRB issued by the system. The Rating Outlook is Stable. SECURITY AFTRB represent a limited obligation of USM, payable from tuition revenues and net auxiliary fees. KEY RATING DRIVERS STABLE CREDIT CHARACTERISTICS: The 'AA+' rating reflects an overall stable credit profile, including balanced operations which contribute to a growing financial resource base and consistent programmatic demand. STRONG STATE RELATIONSHIP: As the state of Maryland's (general obligation debt rated 'AAA' by Fitch) sole public university system, USM shares responsibility for the state's educational and workforce growth goals. The state has provided consistent financial support to the system as a result of this linkage, despite the pressured economic climate. CONSERVATIVE DEBT MANAGEMENT: Ongoing capital needs to support the system's infrastructure and provide capacity for the growing student population result in periodic debt issuance. However, the debt is conservatively structured, actively monitored for interest cost saving opportunities, managed prudently via internal policies and a constitutional debt limit imposed by the state, and does not represent a heavy burden on the system's operations. CREDIT PROFILE USM's 'AA+' rating reflects a history of strong operating performance, supported by a diverse revenue base, which has allowed the system to build its financial resource base annually. Unaudited results for fiscal 2012 indicate an operating surplus approaching the level achieved in fiscal 2011 (+5.2%). The system has posted historically very stable results, with an average surplus of 3% from fiscal 2007 to fiscal 2011. This consistency is supported by a diverse revenue mix. Student-generated revenues have provided an average of 37% of annual operating revenues over the past five years. This revenue stream is underpinned by a very solid enrollment picture. Over the past five enrollment cycles (fall 2007 to fall 2011), full-time equivalent enrollment has increased by 3.9% on average. State appropriations have historically represented 25.6% of total operating revenues. Despite the stressed economic climate, the state of Maryland has held appropriation levels flat in recent years, with a 1.3% increase slated for fiscal 2013. Finally, grant and contract revenues have grown relatively consistently, contributing 27.9% of operating revenues on average. The system's balance sheet cushion has continued to grow as a result of positive investment returns and the reinvestment of operating surpluses. Available funds (defined by Fitch as cash and investments not permanently restricted) reached $1.7 billion in fiscal 2011, and are expected to post modest improvement in fiscal 2012. As compared to the system's fiscal 2011 operating expenses and total pro forma debt, available funds represent an adequate 41.6% and stronger 131.1%, respectively. As indicated by the strong coverage of outstanding debt by available funds, the system's debt burden is moderately low. Pro-forma maximum annual debt service (MADS, $138 million due in fiscal 2013) represented just 3.2% of fiscal 2011 revenues, while net income available for debt service provided 3.5x MADS coverage. In addition to the low demonstrated debt burden, Fitch views the system's conservative policy of maintaining its debt burden below 4.5% of revenues positively. Established in 1988, USM consists of 11 universities and one research institute. While a recent proposal to merge two of the system's campuses (College Park and Baltimore) was rejected by the board of trustees, USM is moving toward improving collaboration between the two campuses in the immediate term, and among other campuses with shared missions system-wide in the intermediate term. The system's flagship campus is located in College Park, Maryland, approximately 30 minutes outside of the District of Columbia.
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