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Rating Update:

MOODY'S AFFIRMS ALBRIGHT COLLEGE'S Ba1 RATING ON $17.2 MILLION OF REVENUE BONDS, SERIES 2004; OUTLOOK REMAINS STABLE

30 Jun 2011

COLLEGE MAINTAINS APPROXIMATELY $17.2 MILLION OF RATED DEBT OUTSTANDING

Berks County Municipal Authority, PA
Higher Education
PA

Opinion

NEW YORK, Jun 30, 2011 -- Moody's Investors Service has affirmed the Ba1 long-term rating on Albright College's (Albright and College) Series 2004 Revenue Bonds issued through the Berks County Municipal Authority. The rating outlook remains stable.

SUMMARY RATING RATIONALE

The Ba1 rating reflects the College's thin level of financial resources, leveraged balance sheet, variable rate debt exposure as well as a generally stable market position, although challenging matriculation rates, and healthy operating performance.

STRENGTHS

*Stable market position and healthy student demand as a private, co-educational liberal arts institution serving 2,363 full-time equivalent (FTE) students in Reading, PA.

*Healthy operating performance with three-year average operating margin of 7.1% from fiscal years (FY) 2010-2008, as calculated by Moody's, covering debt service by 2.6 times over the same period. The College generated $7.7 million of cash flow to cover $2.4 million in annual debt service, resulting in operating cash flow margins of 15% in 2009 and 14% in 2008, up from 9% and 7% in 2005 and 2004, respectively.

*Strengthened fundraising focus and improved three-year average gift flow rising to $4.3 million through fiscal year 2010, in line with the median of $4.6 million of Moody's Ba-rated institutions.

CHALLENGES

*Continued stiff competition driving need to maintain favorable student demand. The College's dependency on student charges (86% of FY 2010) as the primary source of operating revenue stresses the continued importance of successful recruitment and retention of students as future demand and market position could be pressured given the competitive higher education environment. The high level of competition is reflected in the yield rate of 16% in fall 2010, below the median of 22% for all Moody's Ba-rated institutions.

*Thin balance sheet with unrestricted financial resources of negative $9.8 million in FY 2009 covering -0.2 times. Monthly liquidity of $11.7 million covers 92 days operations and 44.6% of demand debt.

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: Bonds are secured by a pledge of gross revenues and a debt service reserve fund.

INTEREST RATE DERIVATIVES: In 2009, the College entered into a 10-year fixed interest rate swap contract with a current outstanding notional amount of $25.5 million with Wachovia Bank, N.A. (rated Aa2/P-1). Under this agreement the College pays a fixed rate of 2.8275% in exchange for 74% of LIBOR. The School is not required to post collateral and there are no rating triggers tied the College in the agreements. As of April 29, 2011 the mark-to-market value of the swap was a liability of $1.3 million to the College. Moody's has incorporated the risks associated with the swaps in the Ba1 long-term rating.

DEBT STRUCTURE: On December 15, 2010, the College exited the variable rate bonds supported by a single letter of credit ($25.5 million) from Wachovia Bank, NA (rated Aa2/P-1) and issued $25.5 million of variable rate debt through a Continuing Covenants Agreement with Wells Fargo Bank. The agreement includes a Mandatory Purchase Date in December 2013.

The loan includes various covenants which, if breached, could allow the bank to require immediate repayment. These events include, but are not limited to the failure to maintain at least 1.15 times coverage of the Debt Service Coverage Ratio and least 0.40 times coverage of the Liquidity Ratio. As of May 31, 2011, the College's pro-forma calculations note coverage levels met the requirements (Debt Service Coverage Ratio - 1.8 times, Liquidity Ratio - 0.75 times). If a covenant is violated and not remedied, deterioration of the rating could occur at a faster pace. Moody's believes that the variable rate debt structure and terms of the Continuing Covenants Agreement add additional risks especially given the limited unrestricted cash levels.

MARKET POSITION: STABLE MARKET POSITION WITH PRESSURED MATRICULATION RATES

Located in Reading, Pennsylvania, Albright College is a small, liberal arts institution focused on inter-disciplinary education for undergraduate students. The College attracts a high number of first-generation college students and has expanded its focus to include a professional division that operates at satellite locations outside of Reading. Full-time equivalent (FTE) students rose from 1,495 in fall 1999 to 2,363 in fall 2010, a 58% increase. At the same time, the College has improved its selectivity by substantially growing applications and selectivity declined from 80% in 1999 to 45% 2010. Moody's believes that while Albright has experienced consistent enrollment growth and has improved selectivity, both signals of a stabilizing student market position, its market position remains challenged given a pressured matriculation rate of 16% in fall 2010.Low matriculation rates leave the College vulnerable to shifts in demand.

Despite regional competition from both public and private institutions and projected area high school graduation declines, the College continues to draws students as evidenced by increase in fall 2011 applications to over 7,000. The College is on track to exceed the budgeted number of students. The College does not have enrollment growth plans and will continue to focus its attention on increasing retention, which has improved to approximately 80% for freshman to sophomore in the current year.

OPERATING PERFORMANCE: OPERATING PERFORMANCE PROVIDES ADEQUATE DEBT SERVICE COVERAGE

Moody's expects positive operating performance to continue based upon the Albright's conservative budgeting practices. In 2010, Albright generated favorable operating performance as calculated by Moody's, with a one year surplus of 8.7% and a three-year average operating margin of 7.1%. Average debt service coverage over the past three years was 3.0 times. In FY 2010 Albright generated approximately $8.6 million in operating cash flow resulting in healthy operating cash flow margin of 16% and 14% in 2010 and 2009, respectively.

Albright remains a highly tuition dependent institution with student derived fees accounting for over 85% of operating revenues. The College has substantially grown net tuition revenue as overall enrollment has grown and revenue per student has increased. Net tuition per student has increased from just $8,610 in 2000 to over $14,388 in 2010. Over this same time frame, total net tuition has increased from less than $13 million to $33 million. Given the College's improved selectivity and enrollment profile, as well as strategic efforts by management to improve operating performance, Moody's believes the College's operations should benefit from the recent momentum.

BALANCE SHEET: BALANCE SHEET PROVIDES LIMITED CUSHION TO DEBT AND OPERATIONS

Albright maintains a leveraged balance sheet and financial resource levels provide a weak cushion for debt and operations. In FY 2010, financial resources totaled $31.2 million with expendable financial resources of $1.4 million providing a cushion for $43.4 million of debt by 0.03 times and operations by 0.03 times. Based on FY 2010 financial statements, we estimate the College had approximately $50.9 million in cash and investments, of which $35.4 million was not encumbered by collateral requirements or held in debt service reserve funds. Moody's expects the cash position of the College to remain constrained with monthly liquidity of $11.7 million or limited 92 monthly days cash on hand and monthly liquidity to demand debt of 44.6%. Moody's believes feels that the College has extremely limited capacity to incur additional debt at the current rating level as draw downs on resources or additional debt plans will likely pressure the rating.

Through efforts of the College and its Board members, philanthropic giving has increased and gift revenue has averaged $3.0 million over the past three years, a pace consistent with similarly rated institutions. In addition, the School is currently in the midst of the silent phase of a capital campaign targeted to fund endowment growth, capital and the annual fund program.

The College has no plans to assume additional debt and Moody's believes that at the current rating level, there is little or no additional debt capacity unless the financial resources grow significantly to keep pace with potential future debt increases.

Outlook

The stable outlook reflects Moody's expectation that the institution will continue to maintain a steady market position, donor support, positive operating margins and debt service coverage.

WHAT COULD MAKE THE RATING GO UP

Substantial growth of the financial resource base; continued improvement in operating performance; fundraising success

WHAT COULD MAKE THE RATING GO DOWN

Deterioration of student market position; weakening of operating performance; increases in debt not accompanied with growth in financial resources levels

KEY INDICATORS (Fiscal year 2010 financial data, fall 2010 enrollment):

Total Enrollment: 2,363 full-time equivalent students

Total Direct Debt: $43.4 million, $18.5 million rated by Moody's

Total Comprehensive Debt: $49.7 million

Expendable Resources to Debt: 0.03 times

Expendable Resources to Operations: 0.03 times

Three-Year Average Operating Margin: 7.1%

Average Debt Service Coverage: 3.0 times

Monthly Liquidity: $11.7 million

Monthly Days Cash on Hand: 92 days

Monthly Liquidity to Demand Debt: 44.6%

RATED DEBT

Series 2004: Ba1

CONTACTS

University: William W. Wood, Vice President for Administration and Financial Services, 610-921-7749

METHODOLOGY

The principal methodology used in this rating was Moody's Rating Approach for Private Colleges and Universities published in September 2002.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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Analysts

Leah Ploussiou-Chatzigiannis
Analyst
Public Finance Group
Moody's Investors Service

Dennis M. Gephardt
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


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MOODY'S AFFIRMS ALBRIGHT COLLEGE'S Ba1 RATING ON $17.2 MILLION OF REVENUE BONDS, SERIES 2004; OUTLOOK REMAINS STABLE
No Related Data.
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