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Rating Update:

MOODY'S AFFIRMS STETSON UNIVERSITY'S (FL) A3 RATING; OUTLOOK REMAINS STABLE

26 Oct 2010

UNIVERSITY HAS $42.8 MILLION OF RATED DEBT OUTSTANDING

Volusia County Educational Facility Authority, FL
Higher Education
FL

Opinion

NEW YORK, Oct 26, 2010 -- Moody's Investors Service has affirmed its A3 rating on Stetson University ("Stetson" or the "University"). The rating applies to $42.8 million of bonds issued through Volusia County Educational Facility Authority. The rating outlook for the University remains stable.

RATINGS RATIONALE

LEGAL SECURITY: The rated debt outstanding is a general obligation of the University secured by Tuition Revenue.

DEBT-RELATED INTEREST RATE DERIVATIVES: None.

STRENGTHS

*Comprehensive university with four campuses across central Florida, a state with strong demographic projections for the number of high school graduates over the next decade. Stetson has enrolled 3,577 full-time equivalent (FTE) students according to fall 2010 enrollment data with graduate and professional students (including the law school) comprising approximately 40% of the University's total FTE enrollment. Stetson's College of Law has burgeoning enrollment and a good market position as the sole law school serving the Tampa Bay metropolitan area. Management has been developing synergies between the different colleges to enhance its undergraduate program offerings. Stetson's undergraduate selectivity rate is approximately 51% in fall 2010, a 14 percentage point improvement from fall 2006.

*Generally breakeven operating performance with a three-average operating margin, as calculated by Moody's, of 2.3% that provides for strong average debt service coverage of 2.7 times from FY 2007-FY 2009. In FY 2010, operating performance weakened to -1.1%; however, debt service coverage remained strong at 2.2 times. Management held expenses relatively flat from FY 2009 to FY 2010 and reports that it reduced expenses and increased revenues of certain budget line items to off-set enrollment declines that will impact the FY 2011 budget. Management also plans to reduce the endowment spend rate to 4% from a spend rate of 4.75% for FY 2010 (standard spend rate for the industry is 5%), which Moody's believes is a credit positive in order for the University to protect the long term spending power of its endowment.

*Recent success in fundraising with Stetson concluding its $80 million capital campaign in June, 2009. The University generated a three-year average gift revenue of $10.0 million from FY 2008-FY 2010. The campaign provided for various capital projects and the endowment. Notably, the University's unrestricted financial resources increased 41% in FY 2010 from FY 2009, supported in part by unrestricted gifts.

CHALLENGES

*Thin balance sheet with just one quarter of total financial resources ($137.3 million in FY 2010) classified as expendable funds (unrestricted or temporarily restricted net assets excluding plant equity). Expendable financial resources increased in FY 2010 from FY 2009 to $40.3 million covering pro-forma debt 0.58 times and operations 0.37 times. Stetson's ability to grow its financial resource base, particularly its expendable resources, would strengthen its credit profile.

*Enrollment instability over the last seven years primarily attributed to its undergraduate student enrollment which has trended downward since fall 2007. In fall 2010, Stetson enrolled 3,577 full-time equivalent (FTE) students, a 5% decrease from fall 2009 when the University enrolled its largest total FTE student population after two consecutive years of declining total FTE student enrollment. Management is aware of the enrollment challenges and has recently implemented renovations of academic buildings and the landscape to improve the aesthetics of its undergraduate campus, as well as implementing new marketing initiatives to improve enrollment. Moody's expects enrollment to stabilize and believes that further decreases in enrollment or sustained periods of instability could place pressure on either the rating or the outlook.

*Highly dependent on student charges which account for 82% of the University's operating revenue. Based on FY 2010 financials, Stetson also generated revenue from investment income of 7%, other sources of 4%, gifts of 4%, and 3% from grants and contracts. Due to the University's dependence on student charges, Moody's believes that sustained decreases in enrollment and in net tuition revenue per student could create a challenge to the University's relatively breakeven operating performance. However, the University's 40% composition of graduate students, which includes Stetson's College of Law, provide programmatic diversity within the student charges revenue stream and slightly mitigates Moody's concern of the revenue concentration given the University's undergraduate market pressure.

RECENT DEVELOPMENTS

The University plans to issue a bank qualified loan in the amount of approximately $30 million from Fifth-Third Bank before the end of the 2010 calendar year. The proceeds will be used to refinance Series 1996B and Series 1999 Revenue Bonds and approximately $6.5 million will be used for landscape improvements, classroom renovations, and energy management.

Outlook

The stable outlook reflects Moody's expectation that management's implementation of new initiatives and campus improvements will stabilize enrollment, generation of at least balanced operating performance, and no additional near-term borrowing plans.

What could change the rating-UP

Strengthened student demand as demonstrated by stabilized enrollment and healthy growth of net tuition revenue, improved operating performance with consistent generation of strong surpluses, and significant growth in financial resources

What could change the rating-DOWN

Enrollment volatility that negatively impacts operating performance or persistent weakening in student demand; declining financial resources; significant borrowing

KEY INDICATORS (FY 2010 audited financial data and fall 2010 enrollment data)

Total Full-Time Equivalent (FTE) Enrollment: 3,577 students

Freshmen Applicant Acceptance Rate: 50.5%

Freshmen Matriculation Rate (accepted students enrolled): 28.8%

Net Tuition per Student: $19,807

Total FY 2010 Pro-Forma Direct Debt: $69.4 million

Expendable Financial Resources: $40.3 million

Total Financial Resources: $137.3 million

Expendable Resources to Pro-Forma Direct Debt: 0.58 times

Expendable Resources to Operations: 0.37 times

FY 2009 Monthly Liquidity: $43.4 million

FY 2009 Monthly Days Cash on Hand (unrestricted funds available within 1 month divided by operating expenses excluding depreciation, divided by 365 days): 157.9 days

Three-year Average Operating Margin: 1.5%

Total Operating Revenue: $108.1 million

Operating Cash Flow Margin: 8.3%

Three-Year Average Debt Service Coverage: 2.56 times

Reliance on Student Charges (% of Operating Revenues): 82.2%

RATED DEBT

Revenue Bonds, Series 1996 and 2005: A3 rating; insured by MBIA Insurance Corporation

Revenue Bonds, Series 1999: A3 rating; insured by AMBAC Assurance Corporation

CONTACTS

University: George Herbst, Vice President for Business and CFO, 386-822-7015 or Jeffrey Margheim, Associate Vice President for Finance, 386-822-7019

PRINCIPAL METHODOLOGY AND LAST RATING ACTION

The principal methodology used in assigning the rating was the Private University Methodology, published in September 2002, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The last rating action with respect to Stetson University was on August 17, 2007 when a municipal finance scale rating of A3 with a stable outlook was assigned to Stetson University. That rating was subsequently recalibrated to A3 with a stable outlook on May 7, 2010.

REGULATORY DISCLOSURES

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

Erin V. Ortiz
Analyst
Public Finance Group
Moody's Investors Service

Dennis M. Gephardt
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

MOODY'S AFFIRMS STETSON UNIVERSITY'S (FL) A3 RATING; OUTLOOK REMAINS STABLE
No Related Data.
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