COLLEGE HAS $4.0 MILLION OF RATED DEBT OUTSTANDING
NEW YORK, Sep 17, 2010 -- Moody's Investors Service has affirmed its A3 rating on The Monmouth
College ("Monmouth" or the "College"). The rating applies to
the $4.0 million of Series 2000 bonds issued through the City of Monmouth. The
affirmation occurs in conjunction with the planned substitution of the letters
of credit supporting the Series 2002 and 2005 bonds from Allied Irish Banks,
P.L.C. (rated A1/P-1) to PNC Bank, N.A. (rated A1 on watch for a possible
downgrade/P-1) which is expected to occur on October 1, 2010. For
complete details of the letter of credit substitution, please see our
forthcoming report. The rating outlook for the College remains stable.
LEGAL SECURITY: Unsecured general obligation of the College
INTEREST RATE DERIVATIVES: None
*Consistently strong operating performance as a key credit
strength, demonstrated by a Moody's calculated average three year operating
margin of 6.2% from FY 2007-FY 2009, which also is high relative to Moody's FY
2009 median of 4.1% for small private higher education institutions. The College
has improved its operating performance dramatically over the past five years
from more modest operating surpluses of 1.8% due to significant
expense containment and good budgeting practices. Management fully budgets for
depreciation and its endowment spend rate of 4.5% is below the 5% norm for the
sector. The College also has demonstrated success in fundraising with an average
gift revenue from FY 2007-FY 2009 of $7,008. Further, the College's
24.1% operating cash flow margin provides solid MADS coverage of 3.6 times.
Based on FY 2010 unaudited financials, the College also will maintain favorable,
though slightly lower, Moody's adjusted operating performance in FY 2010.
*Adequate liquidity of nearly $12.4 million of unrestricted cash and investments
available within one month at FYE 2009. This liquidity profile translates into
189 monthly days cash on hand (days cash on hand from investments liquid within
*Low age of plant of 8.6 years in FY 2009 compares favorably to the median of
12.0 years of its small A-rated peers. Moody's considers the low age of plant as
a credit strength for the College to attract and retain its student population.
Management's practice of budgeting fully for annual deprecation has enabled the
College to fund deferred maintenance costs from annual cash flow and has
resulted in limited deferred maintenance needs. The College is in the planning
stages of constructing a new integrated learning center, which is anticipated to
be funded almost entirely with gifts. Management reports that it may utilize
bridge financing as it awaits the receipt of pledged gifts for capital projects.
*Relatively stable market position as a private liberal arts
institution, affiliated with the Presbyterian Church, in Western Illinois. After
two years of modest enrollment declines, the College had its highest enrollment
in fall 2009 with 1,371 full-time equivalent (FTE) students, but enrollment
dropped to 1,344 FTE in fall 2010. Although the College expected continued
growth for fall 2010, FTE enrollment of 1,344 is more representative of its
average FTE enrollment from FY 2006-FY 2010. Despite lower enrollment levels,
Monmouth's selectivity improved in fall 2009 and fall 2010 from the prior fall,
improving to 67%. The College's improved selectivity coupled with maintaining
its matriculation rate for fall 2009 and fall 2010 was not seen across the
sector, which experienced deterioration in these metrics for fall 2009 with
Moody's projecting continued softening in fall 2010.
*Relatively thin financial resource base of $61.7 million compared to Moody's FY
2009 medians for small private A-rated institutions of $185 million. The College
has particularly low unrestricted financial resources due to FY 2009 investment
losses of -13% and a reclassification of $29 million of funds from
unrestricted to temporarily restricted net assets. In FY 2009, the
College's expendable financial resources cover debt and operations at 1.33 times
and 0.91 times, respectively. However, based on FY 2010 draft unaudited
financials, expendable financial resources cover debt and operations a more
comfortable 1.74 times and 1.08 times, respectively. The College did regain most
of its losses at the end of FY 2010 with a positive return of 11.2%. In FY 2010,
the endowment was allocated as follows: 60% traditional domestic and
international equities, 20% fixed income, 4% hedge funds, 13% real estate, and
*Possible debt plans within the next few years that would likely pressure the
rating or the outcome. Any borrowing for the project will reduce the cushion of
resources to debt and increase debt to operating revenue, which could result in
downward pressure of the rating or outlook. Moody's will reassess any impact of
the additional debt at the time of issuance.
*Variable rate exposure adds risk to the credit profile, as $15.4 million or 80%
of its debt (before swaps) is in the variable rate mode, supported by Letters of
Credit (LOCs). As of October 1, 2010, the College plans to substitute the letter
of credit provider on its Series 2002 and 2005 bonds to PNC Bank, N.A. from
Allied Irish Banks, P.L.C. The College is in compliance with its covenants based
on the recent test at June 30, 2010. Management reports that the College
may restructure its variable rate debt in the next twelve to eighteen
months, which would be a credit positive given its high proportion of
variable rate debt.
*Competitive market environment, particularly among regional liberal arts
colleges and lower-priced public institutions, as the College is experiencing
moderate stress on its enrollment levels. Monmouth's fall 2010 freshman class of
413 students was slightly under budget. FY 2010 Moody's calculated net tuition
per student was approximately $560 lower than FY 2009's net tuition per
student of $12,192. The College recently hired a new Vice President of
Enrollment, who will start in October, 2010. Management is projecting an
increase in net tuition per student for FY 2011 based on tuition increases.
*High dependence on student charges as a revenue driver (82%) and a relatively
low Moody's calculated net tuition per student of $12,192 compared to its
A-rated peers (FY 2009 median for small A-rated institutions of $21,291 and
$18,030 for small Baa-rated institutions). Based on FY 2010 unaudited
financials Monmouth's net tuition revenue (as calculated by Moody's) decreased
marginally from FY 2009. As student tuition and fees is the College's
primary revenue stream, increasing net tuition is important for the College to
maintain its favorable operating performance.
Moody's rating affirmation is in conjunction with Monmouth College's
substitution of the letter of credit provider on its Series 2002 and 2005 bonds
from Allied Irish Banks, P.L.C. (rated A1/P-1) to PNC Bank, N.A. (the
"Bank" or "PNC") (rated A1 on watch for a possible
downgrade/P-1) which is expected to occur on September 21, 2010.
The letter of credit extends through October 1, 2015 and the College has the
right, exercisable at any time and from time to time (provided that such right
must be exercised prior to 120 days before the current Stated Expiration Date),
to request that the Bank extend the then current Stated Expiration Date for a
period of time to be agreed upon by the Bank and the Borrower mitigating
near-term bank renewal risk.
We believe this debt structure does carry additional risks to the College, as
under certain circumstances the letter of credit bank could require the bank to
accelerate payment of the bonds and terminate the letter of credit. These
circumstances include failure to maintain a Debt Service Coverage ratio of not
less than 1.25 to 1.00 tested for the six month periods ending June 30 and
December 31, failure to maintain Unrestricted and Temporarily Restricted Cash
and Investments to all Debt of at least 1.15 to 1.00 tested for the six month
periods ending June 30 and December 31, a material adverse change, any default
under any Related Documents now existing or in the future between the College
and PNC, and occurrence of a default for any Indebtedness.
As of June 30, 2010, the College is in compliance with the covenanted ratios.
The College had a Debt Service Coverage of 6.56 times and Unrestricted and
Temporarily Restricted Cash and Investments to all Debt of 2.33 times.
The stable outlook reflects Moody's expectation of continued healthy cash flow
that provides solid debt service coverage and future growth in net tuition
revenue. Moody's notes that significant borrowing could pressure the outlook
and/or the rating, but will be assessed at the time of issuance.
What could change the rating-UP
Dramatic increase in the College's financial resource base, particularly in its
unrestricted and expendable financials resources; improved market position
reflected by enrollment and net tuition revenue per student growth, as well as
improvement in its student demand metrics
What could change the rating-DOWN
Pressure on its operating performance caused by stagnant or continued weakening
of net tuition revenue; persistent weakening in student demand; further decline
in financial resources; significant borrowing that further diminishes the
balance sheet cushion relative to debt and operations
KEY INDICATORS (FY 2009 financial data and fall 2009 enrollment data)
Total Full-Time Equivalent (FTE) Enrollment: 1,371 students
Freshmen Applicant Acceptance Rate: 71.7%
Freshmen Matriculation Rate (accepted students enrolled): 28.6%
Net Tuition per Student: $12,192
Total Direct Debt: $19.6 million
Expendable Financial Resources: $26.0 million
Total Financial Resources: $61.7 million
Expendable Resources to FY 2009 Direct Debt: 1.33 times
Expendable Resources to Operations: 0.91 times
Monthly Liquidity: $12.4 million
Monthly Days Cash on Hand (unrestricted funds available within 1 month divided
by operating expenses excluding depreciation, divided by 365 days): 189 days
Three-year Average Operating Margin: 6.2%
Total Operating Revenue: $30.6 million
Operating Cash Flow Margin: 24.1%
Three-Year Average Debt Service Coverage: 4.38 times
Reliance on Student Charges (% of Operating Revenues): 82.2%
Series 2000: A3
Series 2002 and 2005: VMIG1 based on Letter of Credit provided by Allied Irish
Bank (to be replaced by PNC Bank, N.A.)
College: Don Gladfelter, Vice President of Business and Finance, 309-457-2124
PNC Capital Markets: William C. Elliott, Managing Director, 614-529-2177
The principal methodology used in assigning the rating was "Moody's
Rating Approach for Evaluation Private Colleges and Universities,"
published in September 2002. 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 The Monmouth College was on September 17,
2009 when a municipal finance scale rating of A3 with a stable outlook was
assigned to The Monmouth College. That rating was subsequently recalibrated to
A3 with a stable outlook on May 7, 2010.
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.
Erin V. Ortiz
Public Finance Group
Moody's Investors Service
Diane F. Viacava
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS THE MONMOUTH COLLEGE'S (IL) A3 RATING IN CONJUNCTION WITH SUBSTITUTION OF A LETTER OF CREDIT SUPPORTING SERIES 2002 AND 2005 BONDS; OUTLOOK REMAINS STABLE
Moody's Investors Service
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New York, NY 10007