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Rating Update:

MOODY'S AFFIRMS SAINT LOUIS UNIVERSITY'S (MO) A1 AND A1/VMIG1 DEBT RATINGS; OUTLOOK REVISED TO STABLE FROM POSITIVE

14 Feb 2011

UNIVERSITY HAS $268.8 MILLION OF RATED DEBT

Missouri State Hlth & Educational Facs. Auth.
Higher Education
MO

Opinion

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.

STRENGTHS

*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.

CHALLENGES

*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 the University.

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.

Outlook

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): 33.9%

RATED DEBT

Series 1998: A1

Series 1999A & B: A1/VMIG1 (SBPA provided by Bank of America, N.A., expires 10/30/13 )

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)

CONTACTS:

Saint Louis University: Robert J. Woodruff, Vice President and Chief Financial Officer, 314-977-3139 or Gary Whitworth, Treasurer and Chief Investment Officer, 314-977-2133

METHODOLOGY:

The principal methodology used in this rating was Moody's Rating Approach for Private Colleges and Universities published in September 2002.

REGULATORY DISCLOSURES

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.

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

Kimberly S. Tuby
Analyst
Public Finance Group
Moody's Investors Service

Karen Kedem
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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Research Clients: (212) 553-1653


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MOODY'S AFFIRMS SAINT LOUIS UNIVERSITY'S (MO) A1 AND A1/VMIG1 DEBT RATINGS; OUTLOOK REVISED TO STABLE FROM POSITIVE
No Related Data.
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