Oct 4 - Fitch Ratings assigns an 'AA+' rating to the University System of
Maryland's (USM) $115 million auxiliary facility and tuition revenue bonds
(AFTRB) 2012 series C and $58.815 million AFTRB 2012 refunding series D bonds.
A competitive sale is expected on or about Oct. 11, 2012. Proceeds of the bonds
will be used to fund various, system-wide facilities renewal, expansion and
construction projects, refinance a portion of the system's currently outstanding
debt obligations and pay various costs of issuance.
In addition, Fitch affirms the 'AA+' rating on $1.03 billion in currently
outstanding AFTRB issued by the system.
The Rating Outlook is Stable.
AFTRB represent a limited obligation of USM, payable from tuition revenues and
net auxiliary fees.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA+' rating reflects an overall stable
credit profile, including balanced operations which contribute to a growing
financial resource base and consistent programmatic demand.
STRONG STATE RELATIONSHIP: As the state of Maryland's (general obligation debt
rated 'AAA' by Fitch) sole public university system, USM shares responsibility
for the state's educational and workforce growth goals. The state has provided
consistent financial support to the system as a result of this linkage, despite
the pressured economic climate.
CONSERVATIVE DEBT MANAGEMENT: Ongoing capital needs to support the system's
infrastructure and provide capacity for the growing student population result in
periodic debt issuance. However, the debt is conservatively structured, actively
monitored for interest cost saving opportunities, managed prudently via internal
policies and a constitutional debt limit imposed by the state, and does not
represent a heavy burden on the system's operations.
USM's 'AA+' rating reflects a history of strong operating performance, supported
by a diverse revenue base, which has allowed the system to build its financial
resource base annually. Unaudited results for fiscal 2012 indicate an operating
surplus approaching the level achieved in fiscal 2011 (+5.2%). The system has
posted historically very stable results, with an average surplus of 3% from
fiscal 2007 to fiscal 2011.
This consistency is supported by a diverse revenue mix. Student-generated
revenues have provided an average of 37% of annual operating revenues over the
past five years. This revenue stream is underpinned by a very solid enrollment
picture. Over the past five enrollment cycles (fall 2007 to fall 2011),
full-time equivalent enrollment has increased by 3.9% on average. State
appropriations have historically represented 25.6% of total operating revenues.
Despite the stressed economic climate, the state of Maryland has held
appropriation levels flat in recent years, with a 1.3% increase slated for
fiscal 2013. Finally, grant and contract revenues have grown relatively
consistently, contributing 27.9% of operating revenues on average.
The system's balance sheet cushion has continued to grow as a result of positive
investment returns and the reinvestment of operating surpluses. Available funds
(defined by Fitch as cash and investments not permanently restricted) reached
$1.7 billion in fiscal 2011, and are expected to post modest improvement in
fiscal 2012. As compared to the system's fiscal 2011 operating expenses and
total pro forma debt, available funds represent an adequate 41.6% and stronger
As indicated by the strong coverage of outstanding debt by available funds, the
system's debt burden is moderately low. Pro-forma maximum annual debt service
(MADS, $138 million due in fiscal 2013) represented just 3.2% of fiscal 2011
revenues, while net income available for debt service provided 3.5x MADS
coverage. In addition to the low demonstrated debt burden, Fitch views the
system's conservative policy of maintaining its debt burden below 4.5% of
Established in 1988, USM consists of 11 universities and one research institute.
While a recent proposal to merge two of the system's campuses (College Park and
Baltimore) was rejected by the board of trustees, USM is moving toward improving
collaboration between the two campuses in the immediate term, and among other
campuses with shared missions system-wide in the intermediate term. The system's
flagship campus is located in College Park, Maryland, approximately 30 minutes
outside of the District of Columbia.