COLLEGE MAINTAINS APPROXIMATELY $17.2 MILLION OF RATED DEBT OUTSTANDING
Berks County Municipal Authority, PA
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.
*Stable market position and healthy student demand as a private, co-educational
liberal arts institution serving 2,363 full-time equivalent (FTE) students in
*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
*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.
*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
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
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%
Series 2004: Ba1
University: William W. Wood, Vice President for Administration and Financial
The principal methodology used in this rating was Moody's Rating Approach for
Private Colleges and Universities published in September 2002.
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
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credit satisfactory for the purposes of maintaining a credit rating.
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Public Finance Group
Moody's Investors Service
Dennis M. Gephardt
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS ALBRIGHT COLLEGE'S Ba1 RATING ON $17.2 MILLION OF REVENUE BONDS, SERIES 2004; OUTLOOK REMAINS STABLE
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