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Rating Update:

MOODY'S AFFIRMS LOYOLA UNIVERSITY MARYLAND'S A2 RATING; OUTLOOK REMAINS STABLE

29 Mar 2011

TOTAL RATED DEBT OUTSTANDING IS $141.5 MILLION

Maryland Health & Higher Edl. Fac. Auth.
Higher Education
MD

Opinion

NEW YORK, Mar 29, 2011 -- Moody's Investors Service has affirmed Loyola University Maryland's ("Loyola," formerly Loyola College) A2 rating assigned to its Series 1999, 2006A, and 2008 Bonds issued through the Maryland Health and Higher Educational Facilities Authority (the "Authority") detailed below in the RATED DEBT section. The rating outlook remains stable.

SUMMARY RATING RATIONALE

The A2 rating is based upon Loyola University's good but competitive market position as a largely undergraduate mid-sized private Jesuit university located in Baltimore, Maryland that has a track record of favorable operating performance and debt service coverage, sufficient liquidity and modest balance sheet that should show some strengthening from investment returns, and retained surpluses, as well as increased gift flow as it is in the planning phase of a comprehensive campaign.

STRENGTHS

*Consistently healthy operating performance and debt service coverage, generating a three-year average operating margin of 4.4% from FY 2008-FY 2010 with management projecting another surplus in FY 2011. FY 2010 cash flow margin of 13.6% has led to good three-year average debt service coverage of 2.55 times from FY 2008-FY 2010.

*Stable student market as a Jesuit private university in Baltimore, Maryland, enjoying steady enrollment growth with 5,019 full-time equivalent (FTE) students in fall 2010. The university has a large undergraduate population, representing three-quarters of the student population. Net tuition revenue per student remains high at $23,072 in FY 2010, demonstrating the university's favorable market presence.

*Sufficient liquidity with $102.2 million of monthly liquidity, providing 236 days or almost eight months of funds available within one month to support operations. The university also has adequate monthly liquidity to demand debt at 168.7%.

*No additional borrowing plans contemplated in the next two to three years as the university has invested heavily in the campus from FY 2006-FY 2010, evidenced by a high capital spending ratio which averaged 4.47 times over the same time period.

CHALLENGES

*Highly dependent on student charges as its primary revenue source, comprising a high 84.5% of the university's operating revenue in FY 2010, as calculated by Moody's, which highlights the importance for the university to achieve enrollment targets with continued growth of net tuition revenue.

*Increased balance sheet leverage due to unfavorable investment market conditions in FY 2008 and FY 2009 coupled with significant investment in capital assets. Expendable financial resources provide thinner coverage of debt and operations at 0.67 times and 0.63 times, respectively, compared to 1.04 times and 1.09 times in FY 2008.

*Competitive market environment, reflected in a declining and low matriculation rate of 16.9% in fall 2010, as well as an increasing discount rate, representative of intense competition for students.

*Modest fundraising for its rating level, with gift revenues averaging $7.0 million from FY 2008-FY 2010 compared to the median of $19.4 million for A-rated private universities with at least 3,000 FTE students. The university is in the planning stages of a $100 million comprehensive campaign.

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: Payments under the Loan Agreement are an unsecured general obligation of the university. There are no debt service reserve funds.

DEBT STRUCTURE AND DEBT-RELATED INTEREST RATE DERIVATIVES: The university has entered into a floating-to-fixed interest rate swap agreement on the Series 2008 Bonds with Wells Fargo Bank, N.A. (rated Aa2/P-1) (formerly Wachovia Bank) on a $46 million notional amount. Under the Agreement, the university pays a fixed rate of 3.25% and receives the variable rate tied to 1-month LIBOR. Termination events, beyond standard ISDA termination events, include 1) downgrade of the university's rating below Baa2 or its equivalent and the university has not either delivered collateral, a swap insurance policy from a Aaa rated insurer, or other credit support satisfactory to the Bank or otherwise transferred the swap agreement to a reference market maker within 10 business days and 2) downgrade of the Bank's rating to below Baa2 or its equivalent and the Bank has not assigned the agreement to a reference market maker or delivered credit support acceptable to Loyola within 10 business days. Loyola does not have to post collateral at its current rating level but has a $5 million threshold at A3/A- and no threshold if the rating falls below A3/A-. The mark-to-market valuation of the swap as of March 1, 2011 was negative $3.5 million to the university. We believe that the risks associated with swap are manageable at the A2 rating level.

MARKET POSITION/COMPETITIVE STRATEGY: Moody's believes that Loyola, a private Jesuit university in Baltimore, Maryland serving a largely undergraduate student population (75% of students are undergraduate), will maintain a stable student market position. The university offers a diverse array of programs to its undergraduate student body as well as graduate programs in the schools of Arts and Sciences, Education, and Business. Fall 2010 enrollment was 5,019 full-time equivalent (FTE) students which has grown steadily at an average 1.3% per year from fall 2008-fall 2010. Management plans to moderately grow total enrollment, reporting applications are up compared to the same time last year and deposits are consistent with its growth projections for fall 2011. Loyola's growth plan also includes growing its transfer student population while maintaining the same academic qualifications by modifying some of the transfer credit requirements.

Loyola competes intensely with other private catholic universities and certain universities within the University System of Maryland (rated Aa1) which is demonstrated by the universities weak matriculation rate of 16.9% in fall 2010. However, the university's net tuition revenue per student has grown 22% from FY 2006 and remains high at $23,072 in FY 2010, demonstrating the university's favorable market presence. The university also has implemented a new organizational model, appointing an Executive Vice President of which the vice presidents of enrollment, administration, student services, and advancement will report. The university also created a new position, Associate Dean for graduate programs, to focus on management and growth of its graduate program offerings.

OPERATING PERFORMANCE: Moody's expects Loyola to continue to generate favorable operating performance based on good net tuition revenue growth, accounting for 84.5% of its Moody's calculated operating revenue, and conservative budgeting and financial practices, including careful expense containment, budgeting for depreciation and contingency funds, and maintaining a spend rate from its endowment below 5%. The university's three-year average operating margin from FY 2008- FY 2010 was 4.4% with consistent cash flow margins, which has led to healthy three-year average debt service coverage of 2.55 times over the same time period. Management is projecting a slightly weaker operating surplus for FY 2011 compared to FY 2010, by its calculations.

BALANCE SHEET POSITION: Loyola's balance sheet has weakened meaningfully since FY 2008 due to investment losses and significant investment in capital assets, leaving Loyola with a leveraged balance sheet from a debt and operating perspective for the A2 rating category. Expendable financial resources provide thinner coverage of debt and operations at 0.67 times and 0.63 times, respectively, compared to 1.04 times and 1.09 times in FY 2008. The university's fundraising is modest for its rating level with gift revenues averaging $7.0 million annually from FY 2008-FY 2010 compared to the median of $19.4 million for A-rated private institutions with at least 3,000 FTE students. The university has hired a new vice president for advancement and is in the planning stages of a $100 million comprehensive campaign to fund the endowment, current operations, and plant.

Loyola has sufficient liquidity with $102.2 million of monthly liquidity providing 236 days or almost eight months of funds available within one month to support operations. The university also has adequate monthly liquidity to demand debt at 168.7%.

Over the last several years, the university has invested heavily in the campus, evidenced by a high capital spending ratio which averaged 4.47 times from FY 2006-FY 2010. Recent projects include renovation of its science building which will be completed for fall 2011and purchase and renovation of a 44-unit townhouse for student residence halls. In spring 2010, Loyola completed construction of a new athletics center for the university's lacrosse and soccer teams that includes a 6,000 seat stadium, and a practice field, as well as training and locker rooms. The project cost was approximately $62 million and was financed through debt issuance, gifts, and the university's capital reserves.

Moody's expects no near term additional borrowing plans and believes that Loyola has limited additional debt capacity at the rating level without compensating growth in financial resources.

RECENT DEVELOPMENTS

The university renewed its letter of credit (LOC) on the Series 2008 Revenue Bonds with Bank of America, N.A. (rated Aa3/P-1). The LOC's stated expiration date is September 18, 2015, which mitigates near-term renewal risk.

The Bank of America LOC supporting the Series 2008 Revenue Bonds includes various events of default which if breached could result in acceleration of the debt and immediate repayment by the university. These events of default include, but are not limited to a 1.25 times debt service coverage covenant and a liquidity ratio of at least 0.42 times. As of December 31, 2010, Loyola was in compliance with both covenants: debt service coverage was 13.23 times and liquidity ratio was 0.74 times. Moody's believes that the university's unrestricted liquidity provides a good cushion for this level of demand debt. The Reimbursement Agreement requires the university to pay to the Bank obligations from a Liquidity Drawing on the first day of the seventh full calendar month following the day on which such Liquidity Drawing is honored and on the first day of each sixth month thereafter until such reimbursement obligation is paid in full, an amount equal to the lesser of (i) one sixth (1/6th) of the initial amount of such reimbursement obligation and (ii) the entire unpaid principal balance. Full payment on the reimbursement obligations arising from Liquidity Drawings, including principal and interest, fees, charges, costs, and other amounts shall be due and payable in full by the university on the state Expiration date without presentment, demand, protest, or other notice of any kind.

In 2009, the university amended its investment policy and also hired the Fund Evaluation Group as its investment advisor. Since that time, the university rebalanced its investment portfolio to increase liquidity of the endowment. The university also added the position of Director of Investment and Treasury Services. At May 31, 2010, the university's fiscal year end (FYE) return was 19.5%, rebounding from a substantial loss of 24.9% at FYE 2009. The FYTD endowment return as of February 28, 2011 was positive 14.9% with the university's portfolio of $168.0 million invested in: 28.1% hedge funds, 25.1% domestic equity, 15.9% fixed income, 13.2% international equity, 8.8% cash, 4.6% private equity, and 4.3% commodities. As of February 28, 2011, the university's unfunded commitments to private equity investments were $8.0 million.

During the summer of 2011, Randall Gentzler will join Loyola in the role of Vice President for Finance and Treasurer, formerly Vice President for Business and Finance/Treasurer at Philadelphia University (rated Baa2/negative).

Outlook

The stable outlook reflects Moody's expectations of continued favorable operating performance with good cash flow and debt service coverage, solid student demand and growth in net tuition, build up of financial resource cushion, and no debt issuance within the next two years without compensating growth in financial resources.

What Could Change the Rating UP

Substantial growth in financial resource base with limited borrowing coupled with improved freshman selectivity and yield, continued good growth in net tuition revenues, and further diversification of revenues through growth in philanthropic support

What Could Change the Rating DOWN

Decline in financial resources; Sustained deterioration in operating performance; significant additional debt issuance, deterioration of enrollment metrics

KEY INDICATORS (FY 2010 financial data, fall 2010 enrollment data)

Total Full-Time Equivalent (FTE) Enrollment: 5,019 students

Total Direct Debt: $156.9 million

Total Financial Resources: $154.9 million

Expendable Financial Resources: $104.4 million

Total Revenues: $175.9 million

Monthly Liquidity: $102.2 million

Monthly Days Cash on Hand (unrestricted funds available within 1 month divided by operating expenses excluding depreciation, divided by 365 days): 236.4 days

Expendable Financial Resources to Pro-forma Direct Debt: 0.67 times

Expendable Financial Resources to Operations: 0.63 times

Three-Year Average Operating Margin: 4.4%

Average Debt Service Coverage: 2.55 times

Operating Reliance on Student Charges (% of total operating revenues): 84.5%

RATED DEBT

Series 1999, 2006A, 2008: A2

CONTACTS

Loyola: David R. Beaupré, Assistant Vice President Financial Services, 410-617-2917

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Private College and Universities rating methodology published in November, 2002.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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

Erin V. Ortiz
Analyst
Public Finance Group
Moody's Investors Service

Kimberly S. Tuby
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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USA

MOODY'S AFFIRMS LOYOLA UNIVERSITY MARYLAND'S A2 RATING; OUTLOOK REMAINS STABLE
No Related Data.
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