Fitch Affirms Fairleigh Dickinson University's (NJ) Revs & Rev Rfdg Bonds 'BBB'; Outlook Stable

Tue Apr 2, 2013 4:23pm EDT

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NEW YORK--(Business Wire)--
Fitch Ratings affirms the 'BBB' rating on approximately $82.7 million of
outstanding educational revenue and revenue refunding bonds issued by the New
Jersey Educational Facilities Authority (NJEFA) on behalf of Fairleigh Dickinson
University (FDU, or the university). 

The Rating Outlook is Stable. 

SECURITY 

Revenue and revenue refunding bonds are essentially a general obligation of the
university. 

KEY RATING DRIVERS 

STABLE CREDIT CHARACTERISTICS: FDU's consistently positive operating results,
solid balance sheet resources, and manageable debt burden underpin its 'BBB'
rating. Offsetting factors include high revenue concentration and recent
weakness in graduate enrollment. 

SOLID FINANCIAL MANAGEMENT: FDU benefits from its longstanding and experienced
management team, which has implemented strategic initiatives over the past few
years, enabling the university to maintain positive operating performance while
growing balance sheet resources. 

SIGNIFICANT REVENUE CONCENTRATION: Typical of many private higher education
institutions, the university's dependency on student-generated revenues (93.6%
of total unrestricted operating revenues in fiscal 2012) is extremely high. This
degree of revenue concentration exposes the college to unexpected, unfavorable
shifts in student headcount and demand patterns. 

MODERATE DEBT BURDEN: Maximum annual debt service (MADS) of approximately $9.6
million, consumes a moderate but manageable 4.7% of fiscal 2012 unrestricted
operating revenues offset by FDU's strong debt service coverage and lack of
material future capital needs. 

RATING SENSITIVITIES 

ENROLLMENT SHIFTS: FDU's rating is sensitive to material upward or downward
shifts in enrollment given the significant tuition dependence which drives
operating performance. 

CREDIT PROFILE: 

FDU is a private university founded in 1942. The university operates two primary
campuses in New Jersey, each with its own identity and separate mission: the
historic and primarily liberal arts-oriented College at Florham in Florham Park
and the primarily career and graduate-oriented Metropolitan Campus in Teaneck,
New Jersey. The university also operates an international campus in Vancouver,
British Columbia with over 500 students. The university offers over 100 degree
programs on the graduate and undergraduate levels. The combined campuses serve
approximately 12,800 students. 

Positive Operations 

FDU's positive operating performance continues to be driven by growth in
student-generated revenues (tuition and fees) and prudent fiscal management
practices. As calculated by Fitch, the university's fiscal 2012 operating margin
(reflective of the full endowment spending) was healthy at 5.5%, but lower
compared to the 10.9% margin in fiscal 2011, which included the one-time receipt
of $6.2 million in unrestricted funds bequeathed by two separate trusts. Without
these non-recurring revenues, the university's fiscal 2011 margin was 8.1%.
According to management, FDU conservatively budgets annually for an operating
surplus, and projects, based on fiscal 2013 year-to-date results, another
positive operating surplus for fiscal 2013. This history of surplus operations
is viewed positively by Fitch. 

Growing Financial Resources 

Available funds, or cash and investments not permanently restricted, continued
to increase to $97.3 million at the end of fiscal 2012 from $94.6 million in the
prior year, covering a sound 50% of operating expenses and 97.1% of total debt.
FDU's available funds balance has grown incrementally in each of the last three
fiscal years largely due to the operating surpluses generated, which Fitch views
favorably. The university's liquidity relative to debt should continue to
increase as existing debt is paid down with no additional debt issuance planned
in the near term. FDU's financial cushion compares favorably to other 'BBB'
rated private universities Fitch rates. 

Graduate Enrollment Volatility 

The university's total undergraduate enrollment across the two primary campuses
continued to grow 1.5% in fall 2012 and at an average annual rate of 3% over the
last five years. The university is focusing on further improving quality and
controlling growth by continuing to raise admission standards, as demonstrated
by improved selectivity in fall 2012. 

FDU's total full-time equivalents (FTEs) increased 3.7% in fall 2012, following
a 1.9% dip in the previous year which was driven by a 9.8% decline in graduate
FTEs. This trend in declining graduate education has been experienced by many
Fitch rated institutions. Enrollment at the graduate level rebounded in fiscal
2012 with 8.5% growth in graduate FTEs which is attributed to significant growth
in graduate enrollment at the campus in Vancouver, BC, which opened five years
ago. According to management, while volatility at the graduate level continues
to exist at the New Jersey campuses, due to a decrease in corporate and state
support for education, planned growth at the Vancouver campus will continue to
offset the decline in graduate enrollment. Projected graduate enrollment for
fall 2013 in Vancouver is over 300 students, compared to 284 and 76 students in
fall 2012 and 2011, respectively. The university also enrolled its first
graduate pharmacy class in fiscal 2013, reaching its goal of 81 students, which
should help offset graduate enrollment volatility. Fitch views positively
management's ability to offset volatility in graduate enrollment at its primary
campuses with continued growth at the Vancouver campus which should continue to
support positive operations. 

Limited Revenue Diversity 

Revenue diversity remains limited, reflecting FDU's extremely high dependence on
student-generated revenues (93.6% of fiscal 2012 total unrestricted operating
revenues). Fitch recognizes that it is not uncommon for private higher education
institutions to be heavily reliant on student-generated revenues. However, Fitch
views FDU's dependency on student-generated revenues as extremely high,
emphasizing the college's need to sustain and carefully manage enrollment
levels. The university's expansion into Canada is driving significant growth and
some diversity in revenues. Enrolling well over 500 students at the Vancouver
campus in fall 2012 has allowed FDU to expand its international reach to 31
countries. According to management, the Vancouver campus generates approximately
4% of total unrestricted operating revenues and is anticipated to grow as the
size of the campus expands to over 600 students in fall 2013, with further
capacity to enlarge to approximately 1,000 students in the next several years,
which is not expected to be debt funded. 

Manageable Leverage 

Fitch views favorably the university's moderate debt burden, with pro forma MADS
of $9.6 million comprising 4.7% of fiscal 2012 operating revenues. FDU's debt
burden is conservatively structured with MADS due in fiscal 2013, then
level-to-declining annual obligations thereafter. The university's strong MADS
coverage of 2.6x partially mitigates the moderate debt burden, as well as FDU's
lack of additional debt plans and sound balance sheet resources. 

Fitch views positively FDU continued ability to fund ongoing capital projects
with operating surpluses, planned giving and cash received from the university's
recently completed capital campaign, which exceeded its targeted goal. The
university has no near-term building plans. FDU is focusing on maintaining
affordability and will continue to fundraise for scholarship funds. FDU approved
its lowest (3.9%) tuition increase in fall 2012, compared to 5%-6% in recent
years. Fitch believes the university is well positioned to maintain strong
operations while keeping tuition affordable. 

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); 

--'Fitch Affirms Fairleigh Dickinson University's (NJ) Revs & Revenue Rfdg Bonds
at 'BBB'; Outlook Stable' (April 12, 2012). 

Applicable Criteria and Related Research 

U.S. College and University Rating Criteria 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679152

Revenue-Supported Rating Criteria 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015

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PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
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AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

Fitch Ratings
Primary Analyst
Nancy Faingar, +1 212-908-0725
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
James George, +1 212-908-0652
Director
or
Committee Chairperson
Charles Giordano, +1 212-908-0607
Senior Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Copyright Business Wire 2013

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