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Rating Update:

MOODY'S AFFIRMS WILLIAM PATERSON UNIVERSITY'S (NJ) A1 RATING; OUTLOOK REMAINS STABLE

29 Jun 2011

UNIVERSITY HAS $173 MILLION OF RATED DEBT OUTSTANDING

New Jersey Educational Facilities Authority
Higher Education
NJ

Opinion

NEW YORK, Jun 29, 2011 -- Moody's Investors Service has affirmed William Paterson University's ("WPU") A1 rating on the University's outstanding debt issued through the New Jersey Educational Facilities Authority ("NJEFA") which is listed in the RATED DEBT section of the report. The rating outlook remains stable.

SUMMARY RATING RATIONALE

The A1 rating is based on William Paterson University's stable market position as a mid-sized comprehensive public university, consistent generation of healthy operating performance and cash flow margins to provide strong debt service coverage, and good unrestricted liquidity. The rating also incorporates the University's leveraged position from a debt and operating perspective and ongoing capital needs in a state that has historically provided limited capital support and is experiencing ongoing financial stress.

STRENGTHS

*Consistently healthy operating performance with an operating margin averaging 8.3% annually from fiscal year (FY) 2008-FY 2010 and strong cash flow to provide good average debt service coverage of 2.7 times over the same period. Moody's expects positive financial trends to continue based upon consistent net tuition revenue growth.

*Stable market position as a comprehensive regional public university in suburban Wayne, New Jersey, approximately 20 miles from New York City with fall 2010 full-time equivalent (FTE) enrollment at 8,873 students.

*Growing financial resource base, particularly unrestricted financial resources, driven largely through retained operating surpluses and various student fees. Total financial resources have tripled since FY 2006 to $111.7 million with a significant 80%, or $91.7 million, of unrestricted resources designated for academic programs, capital projects, and quasi-endowment.

CHALLENGES

*High debt burden with debt to operating revenues at 0.9 times and maximum annual pro-forma debt service (MADS) representing an elevated 8.2% of the University's operating expenses in FY 2010.

*Competitive market position with a regional draw as 98% of enrollment is from within the state, which could be impacted by the need to continue increasing tuition in light of state budget cuts.

*Ongoing capital needs with capital plans that will deplete unrestricted financial resources approximately $10 million over two years, with plans to borrow within two years for a parking facility.

*Significant reliance on state funding from the State of New Jersey, which was downgraded by Moody's to Aa3 with a stable outlook from Aa2 with a negative outlook on April 27, 2011 due to the state's weakened financial position. The University expects FY 2012 appropriations to remain relatively flat to slightly declining from FY 2011 with state appropriations representing a declining share of operating support for the University (approximately 30% in FY 2010 compared to 37% in FY 2006), as calculated by Moody's.

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: Payments under the Lease Agreement are an unsecured general obligation of the University with lease payments to be paid from any legally available funds. The Series 2000A, 2002E, and 2004A bonds are additionally secured by a pledge of net revenues of various projects and debt service reserve funds.

DEBT STRUCTURE: All of the University's debt is fixed-rate.

DEBT-RELATED INTEREST RATE DERIVATIVES: None.

RECENT DEVELOPMENTS/RESULTS

MARKET POSITION/COMPETITIVE STRATEGY: In fall 2009 and fall 2010, the University's enrollment rebounded from prior years of flat to declining enrollment levels due to completion of significant campus construction on its student center. Enrollment grew nearly 12% to 8,873 FTE students in fall 2010 from 7,941 FTE students in fall 2008, largely attributed to growth of its undergraduate programs. Undergraduate students comprise 92% of WPU's student population, including enrollment of students in a community college program at Mercer County Community College ("MCCC"). The University began the partnership with MCCC in fall 2009 with an eye to diversifying its tuition revenue, in addition to increasing its on-line classes.

Graduate enrollment declined 5.6% to 686 FTE students in fall 2010 from 727 FTE students in fall 2009 which management attributes to lower enrollment in its masters of education programs. The University's graduate enrollment has fluctuated over the past five years with management currently focused on growing graduate enrollment by introducing and expanding programs in high demand careers. Fall 2011 will mark the first class of doctoral students at the University, with approximately 20 students enrolled in the nursing program.

The University received an increase in application for fall 2011 undergraduate enrollment and projects another year of enrollment growth based on current deposits. In April of 2011, the University hired an enrollment management professional for a newly created position reporting directly to the President.

OPERATING PERFORMANCE: The University's operating margin grew to 10.4% in FY 2010 from 6.4% FY 2009, more aligned with prior fiscal years, through a combination of strong growth of net tuition and student fees and containment of expenses. Based on projected unaudited financials provided by management, we expect FY 2011 operating performance to be relatively consistent or slightly improved from FY 2010.

BALANCE SHEET POSITION: WPU's balance sheet will remain highly leveraged as a result of the University's limited capital support from the State. In FY 2010, expendable financial resources of $111.3 million covered debt and operations 0.62 times and 0.63 times, respectively. The University's unrestricted monthly liquidity, however, is relatively favorable with $93.4 million of monthly liquidity which provides approximately 204 monthly days cash on hand.

GOVERNANCE AND MANAGEMENT: Dr. Kathleen M. Waldron became the seventh president of William Paterson University in August 2010. Dr. Waldron previously served as president of Baruch College of the City University of New York prior to joining WPU.

The Middle States Commission on Higher Education completed its 10-year review of the University in April, 2011, reporting that the University met the standards mandated by the Commission with the expectation that the University will receive reaccreditation in June 2011 when the report is finalized. WPU met 13 of the 14 standards, with the unmet standard relating to long-range planning, which the University is currently addressing through development of a strategic plan. The Middle States Commission is an accrediting body that undertakes periodic evaluations for degree-granting colleges and universities in Delaware, Maryland, New Jersey, New York, Pennsylvania, Puerto Rico, and the Virgin Islands.

Outlook

The stable outlook is based on Moody's expectation that William Paterson University will maintain a stable student market position, strong operating performance to cover debt service, and has limited additional borrowing plans in the near-term.

WHAT COULD MAKE THE RATING GO UP

Substantial growth in liquid financial resources to provide a larger cushion for debt and operations; continued healthy operating performance and growth in net tuition revenue

WHAT COULD MAKE THE RATING GO DOWN

Additional debt exceeding growth in financial resources or weakening of its financial resource cushion; deterioration of operating cash flow or deep and sustained operating deficits; pressure on student market with stagnant or declining net tuition revenues; pressure on the state's rating or ongoing reduction of state appropriations without the ability to offset cuts

KEY INDICATORS (FY 2010 financial data; fall 2010 enrollment data)

Total FTE Enrollment: 8,873 students

Comprehensive Debt: $187.1 million (includes operating leases)

Direct Debt: $180.7 million

Operating Revenues: $196.3 million

Monthly Liquidity: $100.7 million

Monthly Days Cash on Hand (unrestricted funds available within 1 month divided by operating expenses excluding depreciation, divided by 365 days: 220.2 days

Expendable Resources to Direct Debt: 0.62 times

Expendable Resources to Operations: 0.63 times

Three-Year Average Operating Margin: 8.3%

Operating Reliance on Student Charges (% of total operating revenues): 58.9%

Operating Reliance on State Appropriations (% of total operating revenues): 29.8%

State of New Jersey General Obligation Rating: Aa3/stable

RATED DEBT

Series 2000A and 2004A: A1; insured by FGIC

Series 2002E: A1; insured by XLCA

Series 2005E: A1; insured by FSA

Series 2008C: A1; insured by Assured Guaranty Corp.

CONTACTS

William Paterson University: Stephen Bolyai, Vice President for Finance and Administration, 973-720-2233

NJEFA: Jennifer Soyka, Director of Project Management, 609-987-0880

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was Public College and Universities published in November, 2006.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit 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.

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Analysts

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

Diane F. Viacava
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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Research Clients: (212) 553-1653


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MOODY'S AFFIRMS WILLIAM PATERSON UNIVERSITY'S (NJ) A1 RATING; OUTLOOK REMAINS STABLE
No Related Data.
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