THE COLLEGE HAS $187 MILLION OF RATED DEBT
Massachusetts Health & Educ. Fac. Auth
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
*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
*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.
*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.
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.
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%
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 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)
Simmons College: Stefano Falconi, Senior Vice President for Finance and
Administration and Treasurer, 617-521-2877
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, public information, and confidential and proprietary
Moody's Investors Service information.
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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 RATING; OUTLOOK IS STABLE
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