COLLEGE HAS $27.4 MILLION OF RATED DEBT OUTSTANDING
Pennsylvania Higher Educational Facs. Auth.
NEW YORK, Apr 5, 2011 -- Moody's Investors Service has affirmed the Baa3 long-term rating on Delaware
Valley College of Science and Agriculture's (PA) Revenue Bonds, Series 1998,
Series 2003 and Series 2004 issued through the Pennsylvania Higher Education
Facilities Authority, and as detailed at the end of this report. The rating
outlook is stable.
SUMMARY RATING RATIONALE
The Baa3 rating reflects the college's market position with healthy
demand, balanced operating performance and continued growth in net tuition
revenue. The rating also reflects weak balance sheet cushions for debt and
operations as well as a thin level of liquidity.
*Stable market position as a private co-educational four-year institution
located in Bucks County, Pennsylvania with full-time equivalent (FTE) students
of 1,933 in fall 2010. The College maintains a historic program emphasis on
agriculture and horticulture but has successfully expanded its program offerings
to undergraduate programs in business, criminal justice and education, as well
as graduate programs in education, agribusiness and business.
*Healthy growth in net tuition revenue per student in fiscal year (FY) 2010 to
$17,066, up from $12,932 in FY 2006. The College remains on target to exceed its
budgeted 460 first time freshman students in fall 2011.
*Balanced operating performance with three-year average operating margin of 0.8%
from 2008-2010, as calculated by Moody's, covering debt service by 1.7 times
over the same period. The College generated operating cash flow margins of
9.5% in 2010, up from 6.8% in 2007.
*No additional debt plans over the next two to three years.
*Modest balance sheet and limited base of financial reserves cushion debt and
operations. Expendable financial resources of $11.5 million in FY 2010 cover
debt and operations by 0.4 times and 0.times, respectively. Based on Moody's
calculation of liquidity, the College maintains $8.1 million of funds in monthly
liquidity translating to a thin 68 days cash on hand.
*Weak revenue diversity with dependency on student charges (91% 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
from public institutions.
*Weak three year average gift revenue of $2 million challenges the College's
ability to increase resource levels and finance growth in capital improvements.
DETAILED CREDIT DISCUSSION
LEGAL SECURITY: Bonds are general obligation of the College.
INTEREST RATE DERIVATIVES: None.
The College's enrollment levels continue to exceed budgeted expectations and
preliminary data suggests that the fall 2011 freshman class will be similar in
size to fall 2010 at 494 FTEs while budgeting for 460 FTEs. While the historic
program emphasis on agriculture and horticulture remains of importance, the
College has successfully expanded its program offerings to undergraduate
programs in business, criminal justice and education, as well as graduate
programs in education, agribusiness and business. Importantly, the College has
produced healthy growth in net tuition revenue per student in FY 2010 to
$17,066, up from $12,932 in FY 2006. Going forward, Moody's believes that
meeting undergraduate enrollment targets will be critical factor for the College
as over 90% of the FTE is comprised of undergraduate students and revenue from
tuition and student charges comprises a large portion of its revenue base.
Operating performance continues to be balanced with three-year average operating
margin of 0.8% from 2008-2010, as calculated by Moody's, covering debt service
by 1.7 times over the same period. The College generated operating cash
flow margins of 9.5% in 2010, up from 6.8% in 2007. Going forward, Moody's
expects healthy operating cash flow to continue based upon the College's steady
growth in net tuition revenue.
Challenging the College is its modest balance sheet and limited base
of financial reserves. Expendable financial resources of $11.5 million in FY
2010 cover debt and operations by 0.4 times and 0.3 times, respectively. Based
on Moody's calculation of liquidity, the College maintains $8 million of funds
in monthly liquidity translating to a thin 68 days cash on hand. Moody's
believes the College maintains little cushion to adjust to unexpected events and
maintains limited capacity to incur additional debt at the current rating level.
In October 2010, the College entered into a $30 million gift agreement with The
Warwick Foundation in which the College received approximately 356 acres of land
and cash and investments of $14.6 million. Under the terms of the agreement, the
College must utilize the land for education purposes over the next 25 years and
must keep $10 million of the gift as permanently restricted for which the income
will be used to maintain and operate the land. The College may spend the other
principal or income of the other component at their discretion, as long as its
use supports the long-term strategic plan.
The stable outlook reflects Moody's expectation that the College will continue
to maintain an overall stable market position, balanced operating performance
and healthy debt service coverage.
WHAT COULD MAKE THE RATING GO UP
Growth of financial resource base to provide a stronger cushion for debt and
operations combined with healthy operating performance
WHAT COULD MAKE THE RATING GO DOWN
Deterioration of student market position, weakening of operating performance,
and additional borrowing without commensurate growth in financial resources
KEY INDICATORS (Fiscal year 2010 financial data, fall 2010 enrollment):
Total Enrollment: 1,933 full-time equivalent students
Total Direct Debt: $29.8 million ($27.4 million rated by Moody's)
Expendable Resources to Debt: 0.4 times
Expendable Resources to Operations: 0.3 times
Three-Year Average Operating Margin: 0.8%
Average Debt Service Coverage: 1.7 times
Monthly Liquidity: $8.1 million
Monthly Days Cash on Hand: 68 days
Series 1998, 2003 and 2004: Baa3
College: Art Glass, Vice President for Finance and Administration, 215-489-2456
and Cheryl A. Moyer, Assistant Vice President for Finance and Administration,
PRINCIPAL METHODOLOGY USED
The principal methodology used in this rating was Moody's Rating Approach for
Private Colleges and Universities published in September 2002.
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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Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
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MOODY'S AFFIRMS Baa3 DEBT RATING ON DELAWARE VALLEY COLLEGE OF SCIENCE AND AGRICULTURE'S (PA) REVENUE BONDS; OUTLOOK REMAINS STABLE
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