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Rating Update:

MOODY'S AFFIRMS SIMMONS COLLEGE'S (MA) Baa1 RATING; OUTLOOK IS STABLE

01 Feb 2011

THE COLLEGE HAS $187 MILLION OF RATED DEBT

Massachusetts Health & Educ. Fac. Auth
Higher Education
MA

Opinion

NEW YORK, Feb 1, 2011 -- Summary Rating Rationale

Moody's Investors Service has affirmed Simmons College's ("The College") Baa1 long term rating. The rating outlook is stable. The College has $187 million of rated debt.

RATINGS RATIONALE: The Baa1 rating and stable outlook reflect our expectation of continued positive operating performance. It also incorporates our expectation that Simmons College will remain committed to improving its debt structure, financial leverage, and student market position while maintaining the prudent management practices that led to the improvement in operating performance, growth in balance sheet liquidity, and significant containment of expenses during the past two years.

LEGAL SECURITY: The College's payments under the Mortgage and Trust Agreement for the Series I (2008) 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: The College has terminated its three interest rate swap agreements with Lehman Brothers Special Financing ("LBSF" or "Counterparty"). The termination payment paid by Simmons to the Counterparty was calculated in consultation with the College's independent swap advisor based on the Loss method of determining payment upon early termination of the swaps. Approximately $5.5 million of the swap termination payment was paid in January 2009. The College is evaluating the possibility of entering into a swap in the future to hedge its taxable variable-rate debt, but currently there are no swaps associated with the Series G bonds and Series 2008 taxable bonds.

STRENGTHS

*The new senior management team has taken proactive steps to improve operating performance and reduce the financial leverage. The operating margins, by Moody's calculations, have significantly improved; a near breakeven performance in FY 2009 (-0.5%) followed by an operating surplus in FY 2010 (2.4%). The College's financial leverage over the next two years is expected to remain conservative based on its current borrowing plans. These and other financial metrics are indicative of the College's improved financial profile, which has benefited from the growth in the net tuition revenue and significant costs containment.

*Although operating within a highly competitive environment, the College has a healthy student market position, with enrollment and net tuition per student growth over the past five years. Fall 2010 full-time equivalent enrollment is at 4,190, a 7.6% increase over the fall 2006 enrollment, reflecting the increasing demand for undergraduate programs for women (54% selectivity in fall 2010), and distinctive co-educational graduate programs, including the Graduate School of Library and Information Science. The net tuition revenues and net tuition per student continued to increase at a healthy pace due primarily to increases in tuition charges and a controlled total tuition discount rate over the last four years. Total net tuition revenues increased by 30% since fiscal 2006, while net tuition per student, at $22,053, increased by 22% during the same period. Continued growth of net tuition revenue is a critical credit factor since the College relies heavily on student charges; 81% of operating revenues were derived from net tuition and auxiliary revenues in FY 2010.

*Attractive academic campus infrastructure primarily due to significant capital investment in recent years evidenced by a high average capital spending ratio of 3.2 times between FY 2006 and 2010 resulting in relatively low age of plant at 6.09 years.

*Consistently healthy gifts revenue at this rating level, with $9.1 million of average annual gift revenue from FY 2008-FY 2010 as compared to Moody's FY2009 median for Baa-rated institutions of $4.9 million. The College is in the early stages of a comprehensive fundraising campaign "The Making Education Work Campaign" with a goal raising $85 million over six years. The management reports that as of November 30, 2010, $37.7 million has been pledged with $33.5 million received in cash.

CHALLENGES

*The College's heavy dependence on student charges combined with the competitive student market highlights vulnerability of operations to enrollment shortfalls The matriculation rate, at 19.2%, highlights strong competition and is lower than the 27% FY 2009 median for Baa rated institutions.

*The College's debt structure is a credit challenge, with $66.8 million of variable-rate debt compared to $90.5 million of expendable financial resources and $36.19 million of unrestricted cash and investments which could be liquidated in one month as of June 30, 2010. The bank letters of credit supporting Simmons' variable rate bonds contain a rating trigger, allowing the bank to accelerate the bonds should Simmons' rating be lowered below Baa1 by Moody's or other rating agencies.

*High balance sheet leverage as a result of spending down of unrestricted financial resources for capital expenditure. The FY 2010 unrestricted financial resources, at $36 million, provided a thin debt coverage by 0.19 times. Moody's believes that there is no room for additional leverage or further spend down of resources for capital or programmatic investment without growth in unrestricted liquidity.

RECENT DEVELOPMENTS

The endowment return for the first half of fiscal 2011 is a favorable 13%, compared to a 4.7% FY 2010 return (following a negative 21.7% in FY 2009). As of December 31, 2010, the endowment was allocated as follows: 43.8% traditional equities, 11.9% fixed income, 14.6% hedge funds, 10.6% real estate, and 19.1% commodities & other alternative investments.

Outlook

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 market position.

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 profile.

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%

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%

RATED DEBT

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 Bank, N.A. (expiration: 4/1/2013); Baa1 underlying rating

Series H fixed rate bonds: Baa1 rating, insured by Syncora Guarantee

Series 2008 taxable bonds variable-rate demand bonds: Baa1 underlying rating, Aa1/VMIG1 rating (JPMorgan Chase Bank letter of credit (expiration: 2/14/2013), two party pay rating methodology)

CONTACTS:

Simmons College: Stefano Falconi, Senior Vice President for Finance and Administration and Treasurer, 617-521-2877

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, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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

Pranav Sharma
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


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MOODY'S AFFIRMS SIMMONS COLLEGE'S (MA) Baa1 RATING; OUTLOOK IS STABLE
No Related Data.
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