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Rating Update:

MOODY'S AFFIRMS ANNE ARUNDEL COMMUNITY COLLEGE FOUNDATION'S A2 RATING ON THE ECONOMIC DEVELOPMENT REVENUE BONDS, SERIES 2002; OUTLOOK IS STABLE

13 Sep 2010

FOUNDATION HAS $14 MILLION OF RATED DEBT OUTSTANDING

Anne Arundel (County of) MD
Higher Education
MD

Opinion

NEW YORK, Sep 13, 2010 -- Moody's Investors Service has affirmed Anne Arundel Community College Foundation's A2 long-term debt rating on $14 million of Series 2002 Economic Development Revenue Bonds (Anne Arundel Community College Project) currently outstanding. The rating outlook is stable.

LEGAL SECURITY: Payments are a general obligation of the College's Foundation, ultimately secured by operating lease payments made by the Community College. Bond repayment is also secured by a cash funded debt service reserve fund equal to maximum annual debt service and a mortgage lien on the Project. The lease is not subject to abatement or deferment of rentals by the College. The lease agreement expires in March 2029 and the bonds mature in September 2028.

INTEREST RATE DERIVATIVES: None

STRENGTHS

*Solid operating and capital support from Anne Arundel County (Aa1, Stable) and the State of Maryland (Aaa, Stable). County and State operating support each account for approximately one-quarter of the College's operating revenue, as calculated by Moody's. County support has been flat during fiscal years 2008 to 2010, with no reductions expected in FY 2011. The College experienced a modest 1% decline in State support in FY 2010 over the prior year, with an additional 3% reduction of operating support in FY 2011. The State and County increased capital support to an average of $10 million per year in fiscal years 2011 and 2012, up from $2 million in FY 2010.

*Moderate sized community college with growing enrollment, including substantial online enrollment (approximately 30% of headcount enrollment in fall 2009). In fall 2009, the College enrolled 11,546 full-time equivalent students. The College is well-positioned to benefit from the significant increased presence of the federal government in the County as a result of the Base Realignment and Closure (BRAC) Commission's recommendations, the expansion of the National Security Agency, as well as private defense contractors in the area. Management estimates a 5% credit enrollment increase in fall 2010.

*Modest debt profile, with no future borrowing plans. Low debt levels reflect the continued strong capital support from the State and County.

CHALLENGES

*Modest financial resource base at the College and affiliated foundation provides limited coverage of debt and operations, with expendable resources of $7.2 million covering debt by 0.5 times and operations by 0.1 times in FY 2009, although cash and investments at the College are higher at $21.6 million. Moody's notes that financial resources are depressed by a growing other post-employment benefits (OPEB) liability, $9.8 million in FY 2009 estimated to reach $13.6 million in FY 2010. We expect the College to maintain or modestly grow financial resources based on the Board of Trustee's policy to maintain between five and ten percent of its current fiscal year total budgeted expenditures as a tuition stabilization fund. The College administration annually will make recommendations to the Board of Trustees in the use of any tuition stabilization fund over this percent range

*Relatively thin operating performance, with additional deterioration in recent years driven by the impact of OPEB expenses associated with the implementation of GASB 45. Adjusting for non-cash expenses associated with OPEB, the College generated a weak 2.6% cash flow margin in FY 2009. Management reports that operating performance in fiscal years 2008 and 2009 were further weakened by heightened expenses associated with transitioning into new and renovated facilities. Preliminary FY 2010 results indicate improved, but still narrow operating cash flow margins.

*Ongoing growth results in the need to invest in capital, programs, and personnel. Management reports plans for approximately $22 million of capital projects for FY 2011 and 2012, with approximately $21 million in funding expected from the State and County. While the near-term outlook for capital support is healthy, the State faces ongoing budget pressures that could result in tightened support for higher education, especially should a trend of revenue weakening continue.

RECENT DEVELOPMENTS

As of May 2010, the Foundation's investment allocation included 43% in domestic equities, 25% in fixed income, 18% in international equities, 7% in hedge funds, and 7% in cash. For FY 2010, the Foundation experienced a 14.1% return. Excluding the assets of the Foundation, the College held $21.5 million in unrestricted monthly liquidity which covered nearly 65 days of cash expenses at FYE 2009. The College's liquidity is primarily held in the Maryland Local Government Investment Pool, with approximately a quarter held in cash at financial institutions.

Outlook

The stable outlook reflects Moody's expectation that the College will continue to grow student generated revenue to help offset near-term pressure on State and County funding. The outlook also incorporates that the College and affiliated foundation do not have near-term borrowing plans and that the College plans to maintain a minimum level of financial reserves.

What Could Change the Rating - UP

Significant growth of financial resources, strengthened operating performance, sustained student market position

What Could Change the Rating - DOWN

Sustained reduction in State or County support, deterioration of financial resource base, deficit operating performance contributing to declines in net assets

KEY INDICATORS (FY 2009 financial data and fall 2009 enrollment data)

Total Enrollment: 11,546 students

Expendable Financial Resources: $7.2 million

Total Direct Debt: $14.6 million

Expendable Financial Resources to Debt: 0.5 times

Expendable Financial Resources to Operations: 0.1 times

Monthly Liquidity of the College: $21.5 million

Monthly Days Cash on Hand of the College: 64.5 days

Three-Year Average Operating Margin: -2.8%

Tuition and Auxiliary Revenue (% of Operating Revenue): 41.0%

Government Appropriations (% of Operating Revenue): 52.8%

RATED DEBT

Economic Development Revenue Bonds, Series 2002: A2

CONTACTS:

Anne Arundel Community College: Andrew Little, Executive Director of Finance, (410) 777-2227 or Melissa A. Beardmore, Vice President for Learning Resources Management, (410) 777-2532

METHODOLOGY & LAST RATING ACTION

The principal methodology used in assigning the rating was the Community College Methodology, published on December 1999, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The last rating action with respect to Anne Arundel Community College was on April 6, 2007 when the municipal finance scale rating of A3 was affirmed and the outlook was revised to stable from negative. That rating was subsequently recalibrated to A2 with a stable outlook on May 7, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the issuer satisfactory for the purposes of assigning 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.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Karen Kedem
Analyst
Public Finance Group
Moody's Investors Service

Stephanie Woeppel
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service
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MOODY'S AFFIRMS ANNE ARUNDEL COMMUNITY COLLEGE FOUNDATION'S A2 RATING ON THE ECONOMIC DEVELOPMENT REVENUE BONDS, SERIES 2002; OUTLOOK IS STABLE
No Related Data.
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