TEXT-Fitch affirms DePaul University, Ill. revs at 'A'
Dec 7 - Fitch Ratings has affirmed the 'A' rating on approximately $307 million of outstanding Illinois Finance Authority revenue bonds issued on behalf of DePaul University (DePaul, or the university); The Rating Outlook is Stable. SECURITY: The bonds are secured by 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 are offset by a very high reliance on student derived revenues. HISTORY OF OPERATING SURPLUSES: The university has generated consistently positive operating margins averaging 8.5% over the last decade. While margins have declined annually for the past five years, fiscal 2012 generated a healthy 5.9% margin from operations. MANAGEABLE DEBT BURDEN: The university's proforma MADS consumes 5.9% of fiscal 2012 operating revenues. This moderately high debt burden is rendered manageable due to the university's ability to provide adequate MADS coverage and limited debt plans. CREDIT PROFILE: DePaul's consistent operating performance, generating positive margins for the last decade primarily supports the 'A' rating. While DePaul's operating margin has narrowed incrementally for each of the last five operating cycles, university operations remain still remain healthy generating a 5.9% margin for fiscal 2012. This dip in profitability resulted from an increase in pension related costs, which are expected to be nonrecurring and additional student and academic support costs. DePaul's dependency on student-generated income (92.3% of total 2012 unrestricted operating revenues) is quite high but is tempered by generally stable enrollment levels which Fitch views quite favorably considering the university's highly competitive operating environment. DePaul's undergraduate enrollment headcount increased for nine out of the last ten years and totaled 24,966 in fall 2012. This slight decline from fall 2011 (25,398) was partially driven by graduate enrollment drop off due to a large graduating class from the law school. Demand for the university is strong and demonstrated by a 58% growth in applications in the past four years. This allowed DePaul to lower acceptance rates by nearly 12% during the same time period while still experiencing stable enrollment growth. While Fitch expects the university's modestly growing demand profile to support continued revenue growth, DePaul's current demand profile is reflected in the 'A' rating. DePaul's ability to generate operating surpluses has enabled the university to shore up its liquidity. In fiscal 2012, available funds, defined as unrestricted cash and investments, achieved slight growth over fiscal 2011 ending the year at $512 million. These available fund levels reflect strong growth (29.4%) from approximately $396 million in fiscal 2010 and constitute a healthy 99% of total operating expenses and 155% of total debt. Fitch considers the university's unrestricted financial cushion more than adequate for the rating level. 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 burden. Consequently, the university's MADS figure is slightly higher than bond debt service and accounts for 5.9% of operating revenues. MADS coverage from fiscal 2012 operations equals 2.5x which is slightly weak for the rating level but still represents a manageable debt burden. While the university does not have immediate debt plans, it has identified several areas of investment within its new 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. 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 eighth largest private institution in the United States. 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 Upgrades DePaul University, IL Revs to 'A'; Outlook Stable' (Dec. 21, 2010). Applicable Criteria and Related Research: Revenue-Supported Rating Criteria U.S. College and University Rating Criteria