UNIVERSITY HAS $268.8 MILLION OF RATED DEBT
Missouri State Hlth & Educational Facs. Auth.
NEW YORK, Feb 14, 2011 -- Moody's has affirmed Saint Louis University's (MO) A1 and A1/VMIG1 debt ratings.
In FY 2010, the University had $268.8 million of rated debt (as detailed in
Rated Debt section). The outlook has been revised to stable from positive
reflecting weakening of balance sheet measures since the positive outlook was
assigned over two years ago due to investment losses in FY 2008 and 2009, as
well as moderate pressure on freshmen matriculation and growth of net
tuition per student as a result of a highly competitive student market.
RATINGS RATIONALE: The University's rating reflects its continued strengthening
of operating performance contributing to growth of financial resources,
diversified program offerings in a competitive student market, and relatively
high exposure to health care activities through a large faculty practice plan
and multiple hospital affiliations.
*Long-term improvement in the University's overall operating performance, with
robust annual cash flow and debt service coverage. By Moody's calculation, the
University achieved an average annual operating margin of 9.0% during FY
2008-2010 and average debt service coverage of 5.1 times during that
timeframe. Careful management of operating expenses, growth of net tuition per
student ($21,593 in FY 2010), and positive health-care operations have
contributed to the strong operating performance.
*Growth of financial resource base and liquidity in FY 2010 ($960.9 million of
total financial resources) after experiencing declines in FY 2008 and 2009. The
University achieved a 13.3% endowment return, following 5% and 21.6% endowment
losses in FY 2008 and 2009, respectively, and gift revenue has averaged over $50
million over the past five years. Unrestricted monthly liquidity of $657 million
in FY 2010 provides good support of expenses and demand debt (nearly 404 monthly
days cash on hand and 2.8 times coverage of demand debt). In FY 2010,
the endowment allocation included approximately: 27% domestic equities, 24%
international equities, 10% hedge funds, 10% real assets (real estate and
commodities), 10% private equity and venture capital, and 15% fixed income
instruments (including absolute return investments).
*Manageable debt load with management reporting no expected borrowing over the
next one to two years, although the capital spending ratio has slowed down
considerably (0.8 times in FY 2009 and 2010) after completion of a research
tower and athletic arena. Debt-to-revenue has declined to 0.4 times, and debt
service-to-operations is low at 3.2%. Expendable financial resources
provide strong support of debt at 2.6 times.
*The University maintains a stable student market position as a
Jesuit university, with diverse undergraduate, graduate, and professional degree
offerings (nearly 12,000 full-time equivalent students in fall 2010), but
operates within a challenging student market competing with both private and
public institutions, largely in the Midwest. This strong competition is
highlighted by a freshmen selectivity rate of nearly 70% in fall 2010 and
matriculation ratio of 20.7%. Although increasing application volume has
contributed to improved freshmen selectivity, the freshmen matriculation has
declined over the past few years, from 23.9% in fall 2006 to 20.7% in fall 2010.
Further, net tuition per student growth slowed in FY 2009 (2.6%) and 2010
(0.7%), compared to stronger growth in prior years (approximately 9% in FY 2007
and 2008). Management reports that freshmen applications are down in fall 2011,
largely due to an internal change in the application counting process. We expect
this will pressure the fall 2011 selectivity ratio, but the University expects
to meet entering freshmen class enrollment target.
*Sizeable exposure to the competitive St. Louis healthcare market, with
health-care related revenues (largely clinical services provided through the
faculty practice plan as well as contractual payments paid from Saint Louis
University and other affiliated hospitals to the University) representing
approximately one-third of the University's operating revenue. The University no
longer owns nor operates a hospital, as Saint Louis University Hospital was
sold to Tenet Heath Care, a for profit hospital system (B2 corporate family
rating) in 1998. Management reports that the affiliated hospital relationships
are healthy and improving.
*The University's debt consists largely (88%) of variable-rate demand bonds,
which adds credit risks including potential acceleration of repayment and
rollover risk associated with extending liquidity facility expiration dates.
These concerns are mitigated by the University's healthy liquidity relative to
demand debt, diversification of bank exposure, and headroom under financial
covenants (financial performance ratio of 2.6 times in FY 2010 compared to a
1.25 times requirement).
*Increasingly competitive research environment, with flattening of annual
research expenditures in recent years ($34.9 million of research expenses in FY
2010 representing nearly 6% of total operating expenses).
LEGAL SECURITY: Payments under the loan agreements are a general obligation of
DEBT-RELATED DERIVATIVES: The University has a large portfolio of floating to
fixed interest rate swap agreements on a combined $235 million notional amount
to hedge the interest rates on its variable-rate demand bonds. The swaps are
diversified among five counterparties. The University has terminated all of its
constant maturity swaps. The combined market valuation of all swaps was negative
$32 million to the University in FY 2010 and negative $21.6 million to the
University as of January 31, 2011, with no collateral currently posted to swap
counterparties. We have incorporated any risks associated with the swaps into
our underlying rating and believe the University has a strong cushion of
unrestricted resources relative to its swap exposure.
Moody's stable outlook reflects our expectation for continued positive operating
performance and growth of financial resources. An increasingly competitive
environment could place pressure on the pace of growth of net tuition per
student and research activity.
What Could Change the Rating - UP
Continued growth of financial resources, despite challenging
investment environment, coupled with continued stable operations of
faculty practice plan and improvement in student demand
What Could Change the Rating - DOWN
Deterioration of health care operations placing pressure on overall
University operations; significant additional borrowing; enrollment declines
KEY INDICATORS (Fall 2010 enrollment data and FY 2010 audited financial data):
Total Full-Time Equivalent (FTE) Students: 11,977 FTE
Freshmen Selectivity: 69.9%
Freshmen Matriculation: 20.7%
Total Financial Resources: $960.9 million
Direct Debt in FY 2010: $268.8 million
Expendable Financial Resources-to-Debt: 2.6 times
Expendable Financial Resources-to-Operations: 1.1 times
Three-Year Average Operating Margin: 9.0%
Reliance on Student Charges: 42.6%
Reliance on Health Care-Related Revenue (largely from faculty practice plan):
Series 1998: A1
Series 1999A & B: A1/VMIG1 (SBPA provided by Bank of America, N.A., expires
Series 2002: A1/VMIG1 (SBPA provided by U.S. Bank, N.A., expires 11/30/11)
Series 2003A: A1/VMIG1 (SBPA provided by U.S. Bank, N.A., expires 11/30/11)
Series 2008A-1, A-2: A1 underlying rating; Aa2/VMIG1 enhanced rating based on
letter of credit provided by Wells Fargo Bank, N.A. (expires 9/2/11)
Series 2008 B-1 and B-2: A1 underlying rating; Aa3/VMIG1 enhanced rating based
on letter of credit provided by Bank of America, N.A. (expires 9/2/11)
Saint Louis University: Robert J. Woodruff, Vice President and Chief Financial
Officer, 314-977-3139 or Gary Whitworth, Treasurer and Chief Investment Officer,
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 and public information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Kimberly S. Tuby
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
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MOODY'S AFFIRMS SAINT LOUIS UNIVERSITY'S (MO) A1 AND A1/VMIG1 DEBT RATINGS; OUTLOOK REVISED TO STABLE FROM POSITIVE
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