WENTWORTH HAS $90.1 MILLION OF RATED DEBT OUTSTANDING
Massachusetts Development Finance Agency
NEW YORK, May 4, 2011 -- Moody's Investors Service has affirmed the Baa1 underlying rating on
Wentworth Institute of Technology's ("Wentworth" or
"Institute") Variable Rate Demand Revenue Refunding Bonds, Series 2008
issued through the Massachusetts Development Finance Agency. The rating outlook
is negative. Moody's also maintains ratings on outstanding debt based on support
provided by irrevocable direct-pay letters of credit as listed in the RATED DEBT
SUMMARY RATING RATIONALE: The Baa1 rating incorporates Wentworth's market
position as an urban technical design and engineering college located in Boston,
consistently healthy operating performance, and heavy reliance on tuition
revenue. The negative outlook is driven by pressure on the college's primary
revenue source, student charges, due to failure to meet enrollment targets and
elevated tuition discounting. The negative outlook also incorporates the
operational and liquidity risks associated with its debt structure and high
balance sheet leverage.
*Market niche as an urban technical oriented college known for programs in
architecture, engineering, and construction management as well as a co-op
program located in the vibrant Longwood and Fenway area of Boston. Member of the
collegiate consortium Colleges of the Fenway which allows the institutions to
collaborate and share resources.
*Consistently strong cash flow and healthy debt service coverage. The FY 2010
operating cash flow margin was 23.9%, providing healthy debt service coverage of
4.3 times. The Institute is projecting a positive operating surplus for FY 2011.
*History of consistent growth of net tuition revenue and net tuition per student
have grown at a healthy pace due primarily to increases in tuition charges over
the last four years. Total net tuition revenues increased by 27% since fiscal
2006, while net tuition per student, at $21,334, increased by 15.9% during the
same period. Moody's notes that there is pressure on student recruitment as
evidenced by the drop in student enrollment by 136 freshman students (fall 2010
versus fall 2009) and increase in tuition discounting.
*Pressure on the Institute's primary source of revenue, student charges due to
enrollment shortfalls and increased tuition discounting. Wentworth relies on
student charges for 92.4% of Moody's adjusted operating revenue.
*Debt structure adds risk with all debt in variable rate mode with a tender
feature. Letters of credit supporting the debt contain termination events and
covenants which, if breached, could result in a mandatory tender of the
variable-rate demand bonds. It could also result in a call on the Institute's
liquidity to repay the bank over a timeframe that is much shorter than the
original schedule. Monthly liquidity of $75.1 million covers debt by a thin 0.83
times as on June 30, 2010.
*High balance sheet leverage with FY 2010 expendable financial resources of
$59.3 million providing a thin 0.66 times coverage of debt.
DETAILED CREDIT DISCUSSION
LEGAL SECURITY: Debt service payments are a general obligation of the Institute,
secured by its unrestricted revenues. Other security features include a negative
pledge on the Core Campus.
INTEREST RATE DERIVATIVES: Wentworth maintains $66.9 million notional amount of
swaps as hedges against interest rate fluctuation on $90.1 million of variable
rate debt currently outstanding. All swaps are floating-to-fixed, with the
Institute paying a fixed rate ranging from 3.30% to 3.615% and receiving 67% of
one-month LIBOR. The counterparties for these swaps are Morgan Stanley Capital
Services (guaranteed by Morgan Stanley, rated A2/P-1; $ 39.6 million notional),
Wells Fargo Bank, N.A. (formerly Wachovia Bank, N.A., rated Aa2/P-1; $13.4
million notional), and Bank of New York Mellon (rated Aaa/P-1, $13.9 million
notional). Wentworth can terminate each swap at any time at market value with
specified notice. The Morgan Stanley and Bank of New York swaps require
the Institute to post collateral based on various rating levels and
threshold values. For the Morgan Stanley swap, the Institute is required to post
collateral for any incremental amount over a $10 million mark to market
threshold; however, the counterparty cannot terminate the swap or require
additional collateral even if the Institute is downgraded below Baa3. As of
December 31, 2010, the value of the swap to Wentworth was negative $4.8
million. For the Bank of New York Mellon swap, Wentworth must post collateral at
the full negative value of the swap to the Institute if its rating is below
Ba1/BB+ or if it ceases to be rated by either Moody's or S&P. As of December
31, 2010, the value of the swap to Wentworth was negative $1.78 million.
The value of swap with Wells Fargo Bank, N.A was negative $1.2 million as of
December 31, 2010.
DEBT STRUCTURE: All of Wentworth's $90.1 million of outstanding debt is in the
weekly variable rate mode with a put feature. The Institute relies on letters of
credit (LOC) from two banks to support its debt. The $28.3 million outstanding
Series 2008 bonds are supported by a letter of credit from RBS Citizens,
N.A. (rated A2/P-1,with a negative outlook) that expires December 10, 2013.
Under the RBS Citizens LOC, the Institute would have up to the earlier of the
termination date or 10 years to repay any advance from the bank to purchase
bonds that were not remarketed. The bank can require acceleration or mandatory
tender of the bonds and immediate repayment of any amounts owed to the bank
within 10 days of notice to Wentworth or the Trustee if the Institute fails to
meet a debt service coverage ratio of 1.25 times at each June 30 and December 31
(2.88 times at December 31, 2010), is involved in certain bankruptcy events,
defaults on Indebtedness in excess of $1 million, or is subject to judgments or
attachments in excess of $1 million that remain unstayed for 30 days. The Series
2007A and 2007B bonds totaling $61.8 million are supported by a letter of credit
from JPMorgan Chase Bank, N.A. (rated Aa1/P-1) that expires November 30, 2013.
Under the JPMorgan LOC, Wentworth would have three years to repay an
advance from the bank to purchase bonds that were not remarketed. The bank can
require acceleration or mandatory tender of the bonds and immediate repayment of
any amounts owed to the bank if Wentworth fails to meet a debt service coverage
ratio of 1.25 times at each June 30 (4.4times at June 30, 2010) or a liquidity
ratio of at least 0.75 times (1.0 times at June 30, 2010), defaults in the
payment of Indebtedness of at least $250,000, or a final judgment against
Wentworth for at least $200,000 remains in effect for 45 days.
RECENT DEVELOPMENTS / RESULTS:
Student market: The Institute experienced modest enrollment decline in fall 2010
with total FTE (Full time equivalent) at 2,812 as compared to 2,897 in fall
2009. The decline is driven by a shortfall in the fall 2010 incoming class, with
approximately 90 students fewer than the prior year. Management attributes the
drop in enrollments to a combination of course offerings not meeting student
demand and inadequate financial aid. To counter this, the Institute reports
introducing new undergraduate programs (fall 2011) in technology and engineering
and graduate programs (fall 2012) in Facilities Management and Civil
Engineering. Additionally, Wentworth reports to have increased discounting
to 26.8% in fall 2011 from 24.8% in fall 2010. Preliminary application data, as
on April 29, 2011 suggests fall 2011 freshman applications to be highest till
date with total deposits at 725 versus 572 last year. Net tuition per student
continued to increase at a healthy pace with compounded annual growth of
3.76% for the last four years. The management is considering moving to a high
tuition with high discounting format in the next couple of years. Management
believes that the perceived value of a high sticker price along with quality
programs will attract more students.
Operating Performance: Management projects FY2011 operations to be favorable,
but modestly thinner than the prior year due to expenses associated with new
faculty (for new courses) and a drop in FTE enrollment. Despite a shortfall of
136 freshmen students in the incoming class, projected net tuition revenue for
FY 2011 is at $61.9 million versus $61.8 million for FY 2010. The Institute
is planning to join 20 other institutes in Massachusetts to bring down
its health care costs by leveraging economies of scale. The enrollment fee for
this consortium is $50,000 which will be refunded in three years.
Endowment: The fiscal 2011 year to date estimated endowment return ending
February 28, 2011 is a favorable 17% compared to the fiscal 2010 return of 4.3%.
The fiscal 2010 return was low due to a $3.5 million unrealized loss on an
investment in Commonfund Real Estate. As of February 28, 2011, the endowment was
allocated as follows: 53% traditional equities, 14.5% fixed income, 22.3% hedge
funds and private equity, 10.1% in inflation hedging, and 0.1% in liquid
capital. According to Moody's calculations, at the end of fiscal 2010 Wentworth
held $75.1 million of unrestricted cash and investments that could be
liquidated within one month which covered all demand debt by a thin 0.83
times and a strong 384 days of operating expenses.
The negative outlook reflects pressure on student enrollment and net
tuition revenue, aggressive debt structure that includes termination events and
covenants which, if breached, could result acceleration of debt, and high
WHAT COULD MAKE THE RATING GO UP
Strengthened student market position as demonstrated by stable enrollment and
growth of net tuition revenue, continued healthy operating performance, improved
balance sheet and liquidity to better support debt and variable rate demand
WHAT COULD MAKE THE RATING GO DOWN
Sustained deterioration of student market position, narrowing liquidity relative
to demand debt, additional borrowing without commensurate growth of financial
resources, breach of covenants under letter of credit agreements,
KEY INDICATORS (FY 2010 financial data and fall 2010 enrollment data)
Total Full-Time Equivalent Students (FTE): 2,812 students
Total Financial Resources: $70.7 million
Total Direct Debt: $90.1million
Monthly Liquidity: $75.1 million
Expendable Financial Resources to Direct Debt: 0.66 times
Expendable Financial Resources to Operations: 0.71 times
Average Operating Margin: 4.9%
Average Debt Service Coverage: 3.5 times
Monthly Days Cash on Hand: 384 days
Monthly Liquidity to Demand Debt: 83.3%
Tuition and Auxiliary Revenue (% of Operating Revenue): 92.4%
Series 2008: Baa1 underlying; Aa3/VMIG 1 based on letter of credit provided by
RBS Citizens, N.A. (expires 12/10/2013)
Series 2007A and 2007B: Aa1/VMIG 1 based on letter of credit provided by
JPMorgan Chase Bank, N.A. (expires 11/30/2013)
Wentworth Institute of Technology: Robert Totino, Vice President for Finance,
PRINCIPAL METHODOLOGY USED
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, and confidential and proprietary
Moody's Investors Service information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of maintaining a credit rating.
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MOODY'S AFFIRMS Baa1 RATING ON WENTWORTH INSTITUTE OF TECHNOLOGY'S (MA) SERIES 2008 BONDS; OUTLOOK REMAINS NEGATIVE
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