TOTAL RATED DEBT OUTSTANDING IS $141.5 MILLION
Maryland Health & Higher Edl. Fac. Auth.
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.
*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
*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
*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.
*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
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
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.
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
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).
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
What Could Change the Rating DOWN
Decline in financial resources; Sustained deterioration in
operating performance; significant additional debt issuance, deterioration of
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%
Series 1999, 2006A, 2008: A2
Loyola: David R. Beaupré, Assistant Vice President Financial Services,
PRINCIPAL METHODOLOGY USED
The principal methodology used in this rating was Private College
and Universities rating methodology published in November, 2002.
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
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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Erin V. Ortiz
Public Finance Group
Moody's Investors Service
Kimberly S. Tuby
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
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MOODY'S AFFIRMS LOYOLA UNIVERSITY MARYLAND'S A2 RATING; OUTLOOK REMAINS STABLE
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