TEXT-Fitch raises Texas Tech University System revs to 'AA+'
Dec 5 - Fitch Ratings has upgraded the rating, to 'AA+' from 'AA', on approximately $554.9 million of revenue financing system (RFS) refunding and improvement bonds issued by the Board of Regents of Texas Tech University System (TTUS, or the system). In addition, Fitch affirms the 'F1+' rating on $150 million tax-exempt and taxable commercial paper (CP) notes. The Rating Outlook is Revised to Stable from Positive. SECURITY RFS debt, including notes issued under the CP program, is secured by all available funds of the system. KEY RATING DRIVERS OVERALL STRENGTHENING MERITS UPGRADE: The upgrade to 'AA+' reflects the system's consistently strong operational performance, growing balance sheet resources and recently elevated status to a 'Tier 1' research institution, making TTUS a beneficiary of the National Research University Fund (NRUF), a state fund established to sponsor research growth among public institutions in Texas. UPWARD ENROLLMENT TRAJECTORY: Enhanced research funding and status are expected to further bolster the already increasing full-time equivalent (FTE) enrollment at TTUS, which provides consistency in the system's largest single revenue stream (student-generated revenues). CONSERVATIVE, MANAGEABLE DEBT BURDEN: TTUS's current debt burden is manageable, based on a conservative, fixed rate structure, moderate additional debt plans and healthy coverage provided by net operating income. SUFFICIENT LIQUID RESOURCES: The 'F1+' rating is based on TTUS's ability to cover the maximum potential liquidity demands presented by its CP program by at least 1.25x from internal resources. CREDIT PROFILE The upgrade to 'AA+' from 'AA' is indicative of consistently positive operating performance, which has increased the system's overall financial flexibility. Over the last five years, TTUS's operating margin has averaged 6.7%, never dropping below break-even despite a pressured state appropriations environment and turbulent financial markets. This resilience to external influences is consistent with Fitch's expectation for a 'AA+' rated public university. Further, TTUS's operating health has helped bolster its financial resource base to a level consistent with the 'AA+' rating. Available funds (defined by Fitch as cash and investments not permanently restricted) grew 18.3% from fiscal 2008 - fiscal 2012, reaching a high of $751.5 million in fiscal 2012. Available funds represent 52.6% of fiscal 2012 operating expenses ($1.4 billion) and 125.6% of total outstanding debt ($598.5 million). TTUS's maximum annual debt service obligation ($56.3 million due in 2014) representing a modest 3.7% of fiscal 2012 operating revenues and covered a healthy 4.3x by net operating income. A strengthening enrollment profile has supported growth in the system's financial flexibility. Between fall 2008 and fall 2012, FTE enrollment has grown to 38,764 students (19.2%) system-wide. Each of the three campuses has experienced substantial growth, with Texas Tech University Health Sciences Center (TTUHSC) growing at a rapid average of 10.8% per year as it ramps up to full capacity. Growth is more moderate at Texas Tech University (TTU) and Angelo State University (ASU), with average annual growth of 4.1% and 2.5%, respectively, consistent with Fitch's expectations for a mature institution. Fitch views further growth projections as achievable given TTUS's comparatively low cost and ascending reputation. Compared to other Big 12 institutions, TTUS's tuition is below average with limited increases planned for the near term. In addition, as of May 2012, TTUS was confirmed as a 'Tier 1' research institution, qualifying as an annual beneficiary of research funding from the NRUF. TTU is presently one of only two institutions to have been granted eligibility for the additional research funding. The prestige attached to the confirmation is expected to further strengthen demand for TTUS's academic offerings. Texas Tech University was originally established in 1923 as Texas Technical College. In 1999, the Texas Legislature established the system by combining Texas Tech University and Texas Tech University Health Sciences Center. In 2007, as a result of further state legislation, Angelo State University, a former member of the Texas State University system, became the third member of the system. In total, component institutions of the system enrolled 38,764 FTE students in fall 2012. 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); --'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity'(June 15, 2012). Applicable Criteria and Related Research: Revenue-Supported Rating Criteria U.S. College and University Rating Criteria Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
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