TEXT-Fitch rates Indiana State University housing, dining revs 'AA-'

Tue Nov 27, 2012 10:04am EST

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Nov 27 - Fitch Ratings assigns an 'AA-' rating to the $30.16 million series
2012 housing and dining system (HDS) revenue bonds issued by the Indiana State
University (ISU) Board of Trustees.

The bonds are expected to sell via negotiated sale the week of December 3. Bond
proceeds will be used to finance the renovation and reconfiguration of Erickson
Hall into a new residence hall facility and for the construction of the new
North Housing residence hall complex, and to pay cost of issuance.

In addition, Fitch affirms the following ratings:

-$20,960,000 HDS revenue bonds at 'AA-';
-$55,520,000 student fee revenue bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY
The housing and dining revenue bonds are limited obligations of ISU, secured and
payable from the net income of the university's self-supporting housing and
dining system. Additionally, ISU covenants that all other legally available
university funds are available to be used if needed to pay debt service,
excluding specifically state appropriations and generally assessed student fees.

Student fee bonds are a limited obligation of ISU, secured by and payable solely
from student fees, which consist of all academic fees, including tuition.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA-' rating reflects strong demand provided
by the growing undergraduate population of ISU and the housing and dining
system's consistently positive operations, which provides healthy coverage of
the associated debt service.

FAVORABLE DEMAND PROFILE: The housing and dining system has recently benefitted
from the sustained improvement in enrollment related revenue growth and student
demand, which supports the growing debt burden.

INCREASED FINANCIAL FLEXIBILITY: Sustained improvement in the university's
operating performance has facilitated continued growth in available funds which
can be used by the housing and dining system to pay debt service if needed.

CREDIT STRENGTH OF UNIVERSITY: ISU's credit strengths include a good market
position, satisfactory financial cushion bolstered by positive operations and
recent fundraising success. Counterbalancing factors include a challenging state
funding environment (Indiana state appropriation backed bonds rated 'AA+' with a
'stable' outlook by Fitch), additional capital plans, which could increase the
moderate debt burden in the next 3 - 5 years and limited pricing flexibility.

CREDIT PROFILE

As of fall of 2012, the university has 10 residence halls with total occupancy
for 3,676 students. Upon completion of the Erickson Hall renovation and the new
north residence hall, there will be 12 residence halls with a total occupancy
for 4,288 students by the fall 2014.

Demand, and subsequently revenues for the housing and dining system are
intrinsically linked to enrollment at ISU. After two consecutive years of strong
enrollment growth, the university's fall enrollment headcount grew to a record
high of 12,114 in fall 2012. Compared to fall 2011, fall 2012 enrollment
increased by nearly 600 students, or more than a 5% increase. Having surpassed
its goal of 12,000 students two years ahead of schedule, ISU has set a new
enrollment target of 14,000 students by 2017. Fitch views ISU's ability to
sustain recent improvement in enrollment as key to achieving the revised
enrollment target, maintaining demand for the system and continuing to generate
positive operations, especially given continued reductions in state funding.

The university's housing and dining system revenue sources include all rents,
fees, fines charges for use of the facilities and interest earnings thereon.
Housing revenues are the largest funding source, representing 64% of operating
revenues, with dining revenues representing 36% of revenues. Housing revenues
alone have increased 8.2% over the past year and 57.1% from fiscal 2008 to
fiscal 2012, bolstering growth in operating margins. The system's fiscal 2012
operating margin ended strong at 24.7% (averaging 18.4% over the past five
fiscal years). The system expects a comparable fiscal 2013 operating margin of
23.6%. Fitch considers the strong operations as adequate to manage the level of
additional debt-related expenses planned for the HDS.

Based on fiscal 2012, the system's income available for debt service increased
27.7% over the previous year to $9.99 million, providing healthy pro forma
maximum annual debt service (MADS) coverage of 2.5x and producing an increasing
but manageable debt burden of 13%, which has grown from 6 - 8% in previous
years. Comfort is gained from sustained improvement in housing revenues and
enrollment growth which supports this MADS burden.

Aggregate housing and dining system MADS is expected to be approximately $3.98
million, occurring in 2015 and incorporates the gross interest for the system's
series 2009B and series 2010 HDS revenue bonds, which were issued as taxable
Build America Bonds under the American Recovery and Reinvestment Act of 2009,
and are eligible for interest subsidy payments. Aggregate MADS based on the net
interest (incorporating the subsidy payment) drops to $3.69 million. Based on
fiscal 2013 projections, income available for debt service is $9.77 million,
resulting in a still strong MADS coverage of 2.45x.

Overall, ISU's seasoned management team has demonstrated prudent financial
planning and conservative budgeting practices in response to changes in the
current funding environment. These decisions have resulted in consistently
strong operations for the university and an increase in balance sheet resources.

Recent reductions in state appropriations, including $4 million in the 2012 - 13
biennium have necessarily decreased ISU's reliance on the state. Appropriations
represented 34% in fiscal 2012 compared to 41% in fiscal 2010. ISU successfully
absorbed the full cut in fiscal 2012. The state appropriation level for fiscal
2013 remains the same as fiscal 2012 ($67.65 million). Fitch positively views
the limited budgetary adjustments required to maintain the historically balanced
operations in fiscal 2013.

ISU's available funds, or cash and investments not permanently restricted, grew
to $126.9 million at the close of fiscal 2012, up 3.7% from the prior year and
23.7% from five years prior. Available funds covered fiscal 2012 operating
expenses ($205 million) and long-term debt ($109.5 million) by a comfortable 62%
and 116%, respectively. ISU's steady operating performance provides further
financial flexibility, generating a solidly positive operating margin
consecutively in both fiscal 2012 and 2011 of 8.4% and 9.7%, respectively. Fitch
notes ISU's positive results exceed expectations of break-even to positive
margins for a university in this rating category.

Founded in 1870, ISU is located on 300 acres in Terre Haute, Indiana (70 miles
southwest of Indianapolis). It offers 150 undergraduate programs and various
graduate programs, serving 12,114 students as of fall 2012 The university's
traditional academic focus has been on education, nursing and the health
sciences.

Contact:

Primary Analyst
Nancy Faingar
Director
Fitch, Inc.
+1-212-908-0725
One State Street Plaza
New York, NY 10004

Angela Guerrero
Associate Director
+1-212-908-0259

Emily Wong
Senior Director
+1-212-908-0651


Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:
elizabeth.fogerty@fitchratings.com.

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);
--'U.S. College and University Rating Criteria' (May 25, 2012);
--'Indiana State University, Indiana' (March 2, 2011);
--'Fitch rates Indiana State University's Student Fee Revs 'AA'; Outlook Stable'
(Feb. 23, 2011);
--'Indiana State University, Indiana' (July 30, 2010);
--'Fitch rates Indiana State Univ Board of Trustees' $9.14 MM Housing and Dining
System Revs 'AA-' (July 23, 2010).

Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
Indiana State University (Indiana State University Board of Trustees)
Indiana State University, Indiana

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