COLLEGE HAS $187 MILLION OF RATED DEBT
Massachusetts Development Finance Agency
NEW YORK, Aug 5, 2011 -- Moody's Investors Service has affirmed the long term rating of Simmons College
("Simmons" or "College") in conjunction with the planned
substitution of the College's two letters of credit. The rating outlook is
stable. The College has $187 million of rated debt.
SUMMARY RATING RATIONALE
The Baa1 rating and stable outlook are supported by Simmons's stable
market position, projected improvement in operating cash flows, as well as
dedicated focus on expense containment. The rating also incorporates the
significant progress the College has made in improving its operations, liquidity
and debt structure.
*Dedicated fiscal discipline resulting in consistent improvement in operations.
The operating margins have improved significantly over the last three years from
negative 6.4% in FY 2008 to 2.4% in FY 2010. Management projects FY 2011
operating margins to be stronger than that in FY 2010.
*Stable student market position reflected by continuous growth in enrollments
and net tuition per student.
*Attractive campus due to significant investment in infrastructure in recent
*Healthy philanthropic support at this rating level with average annual gift
revenue between FY2008 and FY 2010 at $9.1 million. The College is currently in
a campaign with a target of raising $85 million until FY 2015.
*Concentrated revenue base with tuition and auxiliary revenues comprising 81.1%
of operating revenues in FY 2010.
*Significant amount of variable rate debt resulting with monthly liquidity in FY
2010 covering demand debt 1:0 times.
*Highly leveraged balance sheet due to heavy capital expenditure in recent
years. The expendable financial resources cover the debt and operations by 0.48
times and 0.76 times respectively in FY 2010.
DETAILED CREDIT DISCUSSION
LEGAL SECURITY: The College's payments under the Mortgage and Trust Agreement
for the Series I (2009) Revenue Bonds are a general obligation of the College,
secured by a subordinate lien on Tuition Receipts (lien junior and subordinate
to the security interest in Tuition Receipts granted to Series C, D, F, G, H,
and 2008 (taxable) bondholders). The Series I bonds are further secured by a
debt service reserve fund as well as a mortgage on the College's residential
campus located approximately two blocks from the College's main academic campus
in Boston. The Series C, D, F, G, H, and 2008 (taxable) bonds are a general
obligation of the College and do not have debt service reserve funds or a
mortgage on any of the College's property.
INTEREST RATE DERIVATIVES: None.
Market: The College reports receiving 4,531 undergraduate applications for fall
2011, an increase of 23% over previous year and the highest volume of
applications in last ten years. Simmons reports having a target incoming
freshman class of between 350 and 370 students with higher academic quality
measured by SAT scores. The matriculation rate (ratio of number of students
accepted to number of students enrolled) is at 17.2% versus 19.2% for fall 2010
and has declined over the past five years (29% matriculation ratio in fall
Senior management: The College made significant additions / changes in filling
the vacant senior management positions. The President's contract has been
extended for another five years (end of fiscal 2016). New deans for the School
of Management, the College of Arts and Sciences, and the School of Nursing and
Health Studies have been appointed. Additionally, a new vice president for
advancement and an internal auditor have been appointed.
Operations: FY 2011 operations are projected to be stronger than that in FY
2010. This is driven by increase in the student enrollment and tuition charges,
coupled with operating discipline resulting in minimal growth in expenses.
Endowment: The FY 2011 preliminary endowment return was 16.7% as compared to
4.7% in FY 2010. The endowment composition as of 06/30/2011 was: U.S equity -
16.8%; non-US equities - 20.2%; fixed income - 14.4%; Inflation hedging -
15.4%; Hedge funds - 17.4%, Cash - 7.1% and others - 8.7%.
Letter of credit substitution: The College has LOCs (letters of credit) on its
Series 2008 (taxable) and Series G bonds by JP Morgan Bank (rated Aa1 / P-1) and
TD Bank (rated Aa2 / P-1) respectively. The management is in the process of
swapping the JP Morgan Chase Bank LOC with TD Bank LOC and extending both by 5
years. Moody's views these extensions as well as the new terms in these
contracts as credit positive. The terms in the revised contracts are more
relaxed than before. Simmons is not required to keep a bank account with
either of these banks. The rating trigger in these documents has also been
amended from a rating threshold of Baa1 to Baa3.
Based on the draft LOC documents, the College is required to maintain certain
financial covenants and also maintain a rating of Baa3 or higher. Should the
College be unable to meet these requirements and trigger an event of default,
the LOC provider has the option to accelerate the bonds and require immediate
repayment by the College. Under the LOC agreement with TD Bank, the College is
required to maintain a debt service coverage ratio of 1:1 and a liquidity ratio
of greater than 0.2:1.0, both tested annually. In the event of failed
remarketing of the bonds, the College must pay the amount representing the
principal component , in equal consecutive monthly installments, within five
years. Under the LOC with JP Morgan Chase Bank, the College is required to
maintain a debt service coverage ratio of 1:1, tested annually. In the event of
failed remarketing of the bonds, the College is required to pay the whole amount
outstanding within four years. The College reports having a debt service
coverage of 2.45 times on June 30, 2010 and projects a coverage of 2.48 times on
June 30, 2011. The liquidity ratio was 0.24 times on June 30, 2010 and
0.33 times on June 30, 2011 (projected).
Moody's will be assigning enhanced ratings to the bonds in a separate review
upon assessment of the documents.
The stable outlook reflects our expectation that the College will continue to
focus on meaningful containment of expenses, rebuilding liquidity and healthy
gift flow in conjunction with the capital campaign.
What Could Change the Rating - Up
Sustainable reduction in puttable debt coupled with continued
operating surpluses, increase in revenue diversity, and improvement in student
What Could Change the Rating - Down
Termination of a liquidity agreement leading to a draw on liquidity of the
College; additional borrowing without commensurate growth of financial
resources; deterioration of student market position; deterioration of liquidity
KEY INDICATORS (Fall 2010 enrollment data and FY 2010 audited financial data):
Total Full-Time Equivalent (FTE) Students: 4,190 FTE
Freshmen Selectivity: 54%
Freshmen Matriculation: 19.2%
Direct Debt: $187 million
Total Financial Resources: $147.2 million
Total Cash and Investments: $164.8 million
Three-Year Average Operating Margin: -1.5%
Three-Year Average Debt Service Coverage: 1.86 times
Reliance on Student Charges (as a % of operating revenue): 81%
Series C fixed rate bonds: Baa1 rating, insured by MBIA
Series D fixed rate bonds: Baa1 rating, insured by Ambac
Series F fixed rate bonds: Baa1 rating, insured by FGIC
Series G variable-rate bonds; Aa2/VMIG1 rating based on letter of credit
provided by TD Banknorth, N.A. (expiration: 4/1/2013),; Baa1 underlying rating;
the letter of credit is expected to be substituted in the next one month by a
Series H fixed rate bonds: Baa1 rating, insured by Syncora Guarantee (Syncora
Guarantee's current rating is Ca with a developing outlook)
Series 2008 taxable bonds variable-rate demand bonds: Baa1 underlying rating,
Aa1 / VMIG1 rating (JPMorgan Chase Bank letter of credit (expiration:
2/21/2013),two party pay rating methodology); the letter of credit is expected
to be substituted in the next one month by a TD Bank LOC
Simmons College: Stefano Falconi, Senior Vice President for Finance and
Administration and Treasurer, 617-521-2877
PRINCIPAL METHODOLOGY USED
The principal methodology used in this rating was Moody's Rating Approach for
Private Colleges and Universities published in September 2002. Please see the
Credit Policy page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this
announcement provides relevant regulatory disclosures in relation to each rating
of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from
existing ratings in accordance with Moody's rating practices. For ratings issued
on a support provider, this announcement provides relevant regulatory
disclosures in relation to the rating action on the support provider and in
relation to each particular rating action for securities that derive their
credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides relevant regulatory disclosures in
relation to the provisional rating assigned, and in relation to a
definitive rating that may be assigned subsequent to the final issuance of the
debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that
would have affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties
involved in the ratings, public information, and confidential and proprietary
Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Public Finance Group
Moody's Investors Service
Kimberly S. Tuby
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS SIMMONS COLLEGE'S (MA) Baa1 LONG-TERM RATING IN CONJUNCTION WITH LETTER OF CREDIT SUBSTITUTIONS; OUTLOOK IS STABLE
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007