TEXT - Fitch rates South Carolina's Coastal Carolina Univ higher ed revs

Wed Jan 23, 2013 5:13pm EST

Related Topics

Jan 23 -  Fitch Ratings assigns an 'A+' rating to approximately $50.9
million of higher education revenue bonds, series 2013 (the bonds) issued by
Coastal Carolina University (CCU).  The bonds are expected to sell competitively
the week of Feb. 4th. Bond proceeds will be used to finance the construction of
the first phase of a new on-campus student housing facility (the project), fund
capitalized interest, and pay costs of issuance.  

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of all revenues of the university on a parity 
basis with outstanding revenue bonds.  The pledged revenues exclude state 
appropriations and tuition revenues pledged to general obligation (GO) state 
institution bonds (rated 'AAA' by Fitch).

RATING SENSITIVITY/ RATING DRIVERS 

STABLE CREDIT ATTRIBUTES: CCU's 'A+' rating reflects consistently positive 
operating results, stable and growing enrollment trends and adequate balance 
sheet liquidity.  These strengths are offset by an atypically high reliance on 
student revenues, an increasing pro forma debt burden and the expectation of 
future debt issuance.

STUDENT DEMAND DRIVES PERFORMANCE: Enrollment has increased steadily over the 
years as demand has remained strong from both in-state and out-of-state 
applicants.  The university's revenue mix benefits from out-of-state tuition 
levels which are instrumental in generating consistently strong margins.  

HIGH DEBT BURDEN MANAGEABLE: CCU's operating history as an independent state 
school is limited and, in the course of maturing, will require on-going 
investment in facilities and programs, portions of which are typically 
debt-financed.  While expected student housing related issuance will increase 
the pro forma debt burden, historical coverage derived from operations is 
adequate at 1.7x.  

TUITION RELIANCE OFFSETS STATE SUPPORT:  CCU's revenue dependency on state 
appropriations (state of South Carolina GO bonds rated 'AAA') declined to 5.8% 
in fiscal 2012.  The university's success in managing reductions in funding with
enrollment growth and associated tuition and fees causes a high reliance (72.2% 
of revenues) on student-generated revenues.  

CREDIT PROFILE:

ENROLLMENT GROWTH DRIVES HOUSING NEED

Headcount, as a result of sustained demand, has increased over the past five 
years.  Fall 2012 headcount totaled 9,335 students, an increase of 22% from 
7,677 in fall of 2008.  FTEs increased to 8,859, from 7,178 (23% growth) during 
the same time.  Currently, 38% of the total student population resides on 
campus; freshmen and sophomores are required to live on campus.  Based on 
historical enrollment growth as an indicator for student housing demand, CCU has
ascertained there will be a need for additional beds by fall of 2015.  Therefore
the university is undertaking the project, which is intended to provide 
additional capacity by fall 2015.     

The university's acceptance and matriculation rates averaged 72.5% and 29.7%, 
over the past five years, respectively.  CCU's retention rate for freshman to 
sophomore, over the same time period, declined to 60%.  As a result, CCU has 
begun providing student services that are designed to support integration into 
college level work and academic performance in order to improve retention rates 
going forward.  Fitch considers the university's overall demand profile robust 
enough to withstand a low retention rate for the near term.  Fitch also notes 
that the university's traditional student mix represents 46% of out-of-state 
students (above average for a public institution) and acknowledges the favorable
effect of this mix on CCU's financial performance.  

HEALTHY OPERATING MARGINS 

CCU's ability to generate consistent operating surpluses is reflected by an 
average operating margin of 10.6% from fiscal 2008-2012.  During the same time, 
the university's relative affordability versus in-state peers enabled regular 
rate increases which, along with enrollment growth, have produced adequate cash 
flow from operations.  While state funding levels for the university have 
declined over the years, CCU's operational viability is supported by a property 
tax millage within Horry County (rated 'AA+') and by a portion of county-wide 
local option sales tax revenue collected through 2024.  The aforementioned 
positives are balanced by the university's 72.2% reliance on tuition, fees and 
auxiliary revenues for its operations (relatively high for a public 
institution).  

LIQUIDITY ANCHORED BY OPERATIONS

Available funds, calculated as cash and investments, less any restricted funds, 
totaled $89 million in fiscal 2012.  Fitch notes that consistency in operating 
surpluses has enabled the maintenance of balance sheet resources despite ongoing
construction and improvements for the university.  For fiscal 2012, available 
funds represented 62.9% of operating expenses and 65.1% of pro forma debt.  The 
university's resources are adequate for the rating category, tempered, however, 
by Fitch's expectation of future capital expenditures for projects included in 
CCU's long-term master plan.    

LEVERAGE EXPECTED TO INCREASE  

The bonds are secured by pledged revenues which will eventually exclude fees 
derived from athletic admissions and special athletics.   CCU's revenue-backed 
debt will total $74 million, post issuance.  Fitch only rates the current bond 
issue but includes all outstanding debt (including revenue bonds of 
approximately $19 million) in debt calculations.  Including GO state institution
bonds secured by the state, total debt, post issuance will equal $136 million.  
The debt burden is above average for the rating level at 7%.  The debt burden 
increases to 8.6% assuming the issuance of approximately $38 million in bonds, 
expected in 2014.  The issuance of the additional debt is predicated upon 
student demand and housing need.  Coverage of pro forma maximum annual debt 
service (MADS -$11.1 million) from pledged revenues, 2.1x, declines to an 
adequate 1.7x (MADS - $13.6 million) upon including the anticipated 2014 debt.  
While CCU does not have firm future debt plans aside from the student housing 
project, Fitch expects the university to require capital outlays to fulfill 
facilities needs under a master plan articulated in calendar 2011.  Fitch 
expects that any additional debt and capital spending will be offset by a 
corresponding increase in resources sufficient for its repayment.     

CCU, located in Conway, near Myrtle Beach, SC, was founded in 1954 by Horry 
County citizens, as a two-year college under the College of Charleston.  In 
1958, benefitting from a tax levy referendum, CCU became a campus of the 
University of South Carolina system (rated 'AA', Stable Outlook) and 
subsequently started awarding four-year baccalaureate degrees in 1974.  CCU 
became an independent state supported institution in 1993.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.