College will have $267.7 million of rated debt outstanding
New York, June 20, 2012 -- Moody's Rating
Issue: Taxable Bonds, Series 2012; Rating: Aa2;
Sale Amount: $128,500,000; Expected Sale
Date: 6/26/2012; Rating Description: 501c3 Unsecured
General Obligation
Opinion
Moody's Investors Service assigned a Aa2 rating to Bowdoin College's
$128.5 million of taxable bonds, Series 2012.
The Series 2012 bonds are expected to have a bullet maturity in 2112.
At the same time, we have affirmed the college's Aa2 issuer
rating and the Aa2 ratings on $118.5 million of outstanding
fixed-rate Series 2009A and B Revenue Refunding Bonds which were
issued through the Maine Health and Higher Education Facilities Authority.
The rating outlook is stable.
SUMMARY RATING RATIONALE: The Aa2 rating incorporates the college's
superior market position as a highly selective liberal arts institution,
prudent fiscal management, positive operating performance,
history of fundraising success, and extensive financial resources.
Offsetting these factors are the highly competitive environment which
pressures future net tuition per student growth as well as a long-term
oriented investment strategy and a more modest quasi endowment which results
in lower unrestricted monthly liquidity relative to peer institutions.
In addition, the current borrowing significantly increases leverage
relative to Bowdoin's Aa2-rated peers and the college's
pro-forma debt structure, including the current offering
with a bullet maturity in 100 years, adds credit risk and is incorporated
into the Aa2 rating.
STRENGTHS
*Small, but extremely selective undergraduate liberal arts college
in Maine, with 1,775 full-time equivalent (FTE) students,
strong 16% freshmen acceptance rate and 46% yield for fall
2011.
*Ample financial resources, with $1 billion of cash and
investments, providing strong coverage of debt and operations;
in FY 2011, expendable financial resources of $587 covered
debt by 3.8 times and operations by 4.6 times.
*Prudent fiscal management leading to positive operating performance
in recent years, with three-year average operating margin
of 5% and operating cash flow margin of 16.7% in
FY 2010, providing solid average annual debt service coverage of
3.5 times.
*Continued healthy philanthropic support with FY 2011 average gifts
per student of $19,234 far exceeding the FY 2010 median for
Aa-rated private colleges and universities of $12,234.
*Strong coordination between investment office and finance office.
*Largely fixed rate debt structure and sufficiently flexible and liquid
reserves relative to variable rate debt, monthly unrestricted liquidity
of $65 million as of June 30, 2011 translates into 204 monthly
days cash on hand and 315% coverage of demand debt. Monthly
liquidity is expected to improve with this debt issuance.
CHALLENGES
*New extremely long term debt structure offering less flexibility
with approximately 46% of portfolio held in a 100-year bullet
maturity with an optional make whole redemption provision; lack of
principal amortization limits Bowdoin's future debt capacity absent
substantial resource growth.
*Highly competitive environment among top-tier institutions
combined with relatively small enrollment size highlights importance of
maintaining the college's market position, focused financial
aid initiatives and continued growth in net tuition per student.
*Significant operating leverage with pro-forma debt to operating
revenues of a very high 2.1 times with this new issuance.
The college will carry both the Series 2012 bonds and the Series 2009A
bonds on the balance sheet until the Series 2009A bonds are redeemed,
which is anticipated to occur in 2019. We note that this leverage
will significantly decrease after the planned redemption of the bonds.
*Highly long-term investment strategy with a strong emphasis
on absolute return limits near-term unrestricted liquidity;
at June 30, 2011 monthly liquidity of $65 million represents
a low 6.5% of total cash and investments. However,
Moody's notes that Bowdoin's strategy has yielded very strong
investment returns (9.4% over the past ten years as of 6/30/11),
and that the college reports an additional $174 million of monthly
liquidity within the endowment.
*Seven-year investment strategy for the $99 million
of proceeds from the Series 2012A bonds intended to refund the Series
2009A bonds ($99 million) adds a further degree of market risk;
if the investments do not perform as anticipated, Bowdoin will either
have to refund the Series 2009A bonds out of its limited unrestricted
funds, or continue to carry the debt on its balance sheet.
Outlook
The stable outlook incorporates Moody's expectation that Bowdoin will
maintain an excellent student market position and strong resource coverage
of debt and operations. We also expect that the college will remain
committed to maintaining operational balance and focused on continued
expense containment.
WHAT COULD MAKE THE RATING GO UP
Rapid growth of financial resource base relative to debt and expenses
and increased revenue diversity, coupled with strengthening of operating
performance
WHAT COULD MAKE THE RATING GO DOWN
Significant pressure on student demand; investment losses and increased
debt levels resulting in weakening of balance sheet measures, in
particular sizeable investment losses in the $99 million of Series
2012 bond proceeds ; decreases in monthly liquidity
RATING METHODOLOGY
The principal methodology used in this rating was U.S. Not-for-Profit
Private and Public Higher Education published in August 2011. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
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Eva Bogaty
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Kimberly S. Tuby
Vice President - Senior Analyst
Public Finance Group
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Aa2 rating to Bowdoin College's (ME) $128.5 million of Fixed-Rate Taxable Bonds, Series 2012; Outlook is stable
