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MOODY'S ASSIGNS A1 RATING TO NEW JERSEY INSTITUTE OF TECHNOLOGY'S SERIES 2010H AND SERIES 2010I BONDS; OUTLOOK IS STABLE

19 Oct 2010

UNIVERSITY WILL HAVE APPROXIMATELY $146.9 MILLION OF RATED DEBT OUTSTANDING

New Jersey Educational Facilities Authority
Higher Education
NJ

Moody's Rating

ISSUE

RATING

Revenue Bonds, Series 2010

A1

  Sale Amount

$70,000,000

  Expected Sale Date

11/01/10

  Rating Description

Public University Revenue Bonds

 

 
Moody's Outlook   Stable
 

Opinion

NEW YORK, Oct 19, 2010 -- Moody's Investors Service has assigned an A1 rating to New Jersey Institute of Technology's ("NJIT" or the "University") $70 million of Revenue Bonds, Series 2010H and Series 2010I to be issued through the New Jersey Educational Facilities Authority (the "Authority"). The Series 2010H bonds will be issued as fixed rate tax exempt bonds and the Series 2010I bonds are expected to be issued as taxable Build America Bonds ("BABs") with the federal tax subsidy payment of 35% made directly to the Authority. Moody's also has affirmed its A1 rating on NJIT's existing bonds as detailed in the "RATED DEBT" section of this report. The outlook is stable.

RATINGS RATIONALE

USE OF PROCEEDS: The Series 2010H bonds will be used to refinance the Series 2001G bonds. The Series 2010H and 2010I bonds will be used to finance the acquisition and renovation of a building located adjacent to NJIT's campus that will be used for academic space and to pay costs associated with issuance.

LEGAL SECURITY: The rated debt outstanding is a general obligation of the University, payable from all legally available funds. The Series 2004B bonds are also secured by a debt service reserve fund. The Series 2010H and Series 2010I bonds are not secured by a debt service reserve fund.

INTEREST RATE DERIVATIVES: There are no outstanding interest rate derivatives.

STRENGTHS

*Unique market niche as the sole public technological research intensive university in New Jersey. NJIT is a mid-sized university that enrolled 7,588 full time equivalent (FTE) students in fall 2010.

*Diversified revenue sources benefit the University in the event that any one revenue stream faces pressure. In FY 2009, NJIT's primary source of operating revenue is student charges (tuition, fees, and auxiliaries), which represent a growing 37% of its revenue base, followed by government appropriations at 29% and grants and contracts at 28%.

*Balanced operations, as calculated by Moody's, with improvement in its operating margin to 2.2% based on unaudited FY 2010 financial statements from positive 0.2% in FY 2009. NJIT's three-year average operating margin, as calculated by Moody's, from FY 2008-FY 2010 was positive 0.3% which provided 2.1 times average debt service coverage over the same time period.

*Proven fundraising ability relative to its New Jersey public institution peers with the University recently completing a $25 million fundraising campaign for its Honors College and Athletics Program. NJIT's three-year average gift revenue remains relatively favorable at $8.2 million from FY 2007-FY 2009. NJIT is in the quiet phase of a $150 million comprehensive campaign that is planned to primarily support the endowment and capital improvements.

CHALLENGES

*Limited balance sheet resources with approximately $101 million of total financial resources and an elevated amount of debt. Expendable financial resources of $56.5 million provide a weak cushion of pro-forma debt of 0.3 times and operations of 0.3 times based upon unaudited FY 2010 financials. While leverage is elevated, it is consistent with other public institutions within New Jersey due to below average state funding of capital projects compared to other states.

*Very thin amount of liquid funds available within one month to cover operations. NJIT has monthly days cash on hand of 77 days. However, research expenses comprise 19% of NJIT's total expenses and when excluding these research expenses, NJIT would have almost 98 monthly days cash on hand. NJIT has two lines of credit totaling $12 million that it has not drawn on in the past five fiscal years. Moody's believes that NJIT's liquidity is thin for the A1 rating category and a decline in monthly liquidity could pressure the University's outlook or rating.

*Demographic challenges of operating in a competitive market environment and regional student draw, attracting approximately 94% of its students from New Jersey and surrounding states that are projecting declines in the number of high school graduates. Additionally, NJIT has experienced pressure on student matriculation and its yield has deteriorated to approximately 30% in fall 2010 from almost 42% in fall 2005.

*Concerns remain for the State of New Jersey's fiscal position and budget reductions to higher education. The state has proposed a decrease of $7.4 million, or a 16% cut to NJIT's FY 2011 appropriations from $45.1 million. in FY 2010. In order to compensate for reduced state appropriations, management has reduced expenses. Moody's notes that NJIT's revenue diversity mitigates concerns of decreased state funding.

MARKET POSITION/COMPETITIVE STRATEGY: UNIQUE MARKET NICHE AS THE SOLE PUBLIC TECHNOLOGICAL UNIVERSITY IN NEW JERSEY

Moody's believes that NJIT maintains a unique market position as the sole public technological university of higher education in the state. NJIT is a mid-sized research intensive university located in Newark, New Jersey that has fall 2010 full-time equivalent (FTE) enrollment of 7,588 students. NJIT's fall 2010 enrollment dropped modestly from fall 2009 when the University enrolled its largest student population of 7,641 FTE students. Enrollment grew 7% in fall 2009 from fall 2008, a growth rate that exceeded the previous four years of growth (average FTE enrollment growth from fall 2005-fall 2008 was 2.2%). The University attributes the fall 2010 enrollment decline due to a decrease in the number of part-time graduate students and unforeseen undergraduate student melt during the summer months.

NJIT operates in a highly competitive market environment as a regional university drawing approximately 94% of its students from New Jersey, particularly from the University's surrounding counties of Bergen (rated Aaa), Essex (rated Aa2 ), and Middlesex (rated Aa1). The competitive environment also is demonstrated in the deterioration of its yield to approximately 30% in fall 2010 from almost 42% in fall 2005. The University reports that its specialized academic programs, such as architecture and the Honor's College, as well as its athletic program attracts out-of-state students. However, the out-of-state student population is primarily from New York, Pennsylvania, and other northeastern states which are experiencing declines in the number of high school graduates over the next decade. NJIT's enrollment comprises 30% of graduate students, which offsets the demographic trends impacting undergraduate enrollment.

OPERATING PERFORMANCE: DIVERSIFIED REVENUE STREAM INSULATES UNIVERSITY FROM PRESSURE ON ANY ONE REVENUE SOURCE; GENERATES BALANCED OPERATING MARGINS

Moody's expects NJIT to maintain balanced operating performance due to the University's conservative budgeting practices and revenue diversity which protect it from cuts to any one revenue source. The University has produced year over year improvements in its operating margin and based upon FY 2010 unaudited financials, operating margin was 2.2%, as calculated by Moody's. NJIT's three-year average operating margin, as calculated by Moody's, from FY 2007-FY 2009 was negative 1.0% and in FY 2008-FY 2010 the average operating revenue improved to a positive 0.3%. Debt service coverage is good as the University's operating revenues cover debt an average of 2.1 times over the three-year period from FY 2007-FY 2009.

The University derives the largest portion of its operating revenue from student charges at 37%, followed by government appropriations at 29% and grants and contracts at 28%. As funding from the state has diminished over the years (government appropriations comprised 35% of NJIT's operating revenue in FY 2005), NJIT's strategy has been to shift its reliance to student charges (tuition, fees and auxiliaries). To meet the challenges of reduced state appropriations, NJIT will continue to focus on expense containment and revenue enhancement through various initiatives including tuition increases and increasing total enrollment, implementation of a faculty separation incentive program, delay of capital projects and cutting expenses. For FY 2011, NJIT is budgeting for breakeven operating performance. Although the University did not meet its fall 2010 enrollment targets, management does not expect a material impact on its budget due to its practice of budgeting conservatively for enrollment that also includes budgeting of reserves.

Moody's notes that the University's ability to increase revenue from student charges may be challenging in light of a 4% cap on tuition increases in FY 2010 and continued constraints on increasing tuition in FY 2011. Based on unaudited FY 2010 financials, NJIT's net tuition per student increased modestly to $10,740 from 10,375 and NJIT's net tuition revenue continues to grow (3.2% increase from FY 2009 based on FY 2010 financial projections).

Moody's remains concerned for the State of New Jersey's financial position and associated effects on funding for higher education. Earlier in the calendar year, the state proposed cuts to the higher education budget that resulted in a 16% reduction for NJIT's FY 2011 appropriations from FY 2010. Furthermore, on September 22, 2010 Moody's revised New Jersey's (Aa2) outlook to negative from stable reflecting the fiscal pressure faced by the state in the intermediate term. For more information on the State's credit profile, please read our last report published on September 22, 2010.

BALANCE SHEET POSITION: LIMITED BALANCE SHEET RESOURCES PROVIDE THIN LIQUIDITY OF DEBT AND OPERATIONS

Moody's believes that NJIT's financial resource base provides limited financial flexibility and a thin cushion for debt and operations. In FY 2010 total financial resources of $101.4 million (unaudited financial resources) provided a thin cushion of pro-forma debt and operations. Expendable financial resources cover pro-forma debt 0.3 times and operations 0.3 times. In FY 2009, NJIT's expendable financial resources covered debt and operations by 0.4 times and 0.3 times, respectively. While leverage levels are high, they are consistent with other public institutions within the State and reflect below average state funding of capital.

NJIT produced a positive return in FY 2010 of 10%, but its balance sheet positioned had weakened in FY 2009, due to a 19% investment loss. As of June 30, 2010, the University's endowment was allocated as follows: 34% domestic equity, 24% hedge funds, 20% international equity, 17% fixed income, 4% private equity, and 1% cash.

NJIT maintains low monthly days cash on hand of 77 days as of June 30, 2009 compared to the average monthly days cash on hand of Moody's rated A1 institutions in New Jersey of 170 days. However, research expenses as a percent of total expenses is high at 19% and translates to $45.1 million of a $233.1 million expense base that is funded through contracts, grants, or other sources. Excluding these expenses, NJIT would have almost 98 monthly days cash on hand. NJIT anticipates having sufficient cash to address all operational needs in FY 2011, as it did in FY 2010 without the utilization of short-term borrowing. NJIT has two lines of credit totaling $12 million that have not been drawn upon in the past five fiscal years, which could provide additional operating liquidity. Moody's believes that NJIT's liquidity is thin for the A1 rating category and a decline in monthly liquidity could pressure the University's outlook or rating.

Relative to its New Jersey public institution peers, NJIT has demonstrated the ability to fundraise. The University recently completed a $25 million fundraising campaign for its Honors College and Athletics Program. Although NJIT's gift revenue has declined since FY 2008, the three year average gift revenue remains relatively favorable at $8.2 million in FY 2009. NJIT is in the quiet phase of a $150 million comprehensive campaign which is planned to primarily support the endowment and capital improvements. Moody's expects to University's financial resources to improve modestly over time due to its previous successes in fundraising.

With the issuance of the Series 2010 bonds, NJIT will refund approximately $50 million of the Series 2001G bonds which were used to construct and renovate a variety of academic, residential, and student facilities on campus. The Series 2010 bonds also will consist of $20 million of a new money borrowing that NJIT will use to reimburse itself for the purchase of a 200,000 square foot building adjacent to campus, as well as to renovate and equip the building that will be used for academic space, including a large lecture hall. The building was formerly a public high school that was vacated earlier than anticipated, causing management to accelerate its borrowing plans in order to renovate the space for its needs.

Management reports no significant borrowing plans in the near-term. However, NJIT currently is contemplating engaging in a privatized student housing project. Moody's has not incorporated this potential borrowing in the current rating because the plans are in the preliminary stages and project costs and revenues have not been determined. However, Moody's believes that additional debt issuance without growth of its expendable resources, as well as revenues could place pressure on the rating.

Outlook

The stable outlook reflects Moody's expectation that NJIT will maintain its stable student market position, balanced to breakeven operating performance, comfortable debt service coverage as well as no additional near-term borrowing plans.

What could change the rating--UP

Substantial growth in liquid financial resources to provide a larger cushion for debt and operations, improvement of its student market position

What could change the rating--DOWN

Decline in liquidity levels, significant deterioration of operating performance, additional borrowing in the near-term not accompanied by commensurate growth in financial resources, deterioration in its student market position with sustained enrollment declines, or a downgrade of the State's rating

KEY INDICATORS (FY 2009 financial data, fall 2009 enrollment data; amounts in parentheses represent FY 2010 estimates based on unaudited financial data and fall 2010 preliminary market data provided by the University)

Total Full-Time Equivalent (FTE) Enrollment: 7,651 students (7,588 students)

Total Pro-forma FY 2010 Direct Debt: $172.9 million

Total Financial Resources: $98.7 million ($101.3 million)

Expendable Financial Resources: $57.7 million ($56.5 million)

Total Revenues: $233.6 million ($233.6 million)

Monthly Liquidity: $45.4 million

Monthly Days Cash on Hand (unrestricted funds available within 1 month divided by operating expenses excluding depreciation, divided by 365 days): 77 days

Expendable Financial Resources to Direct Debt: 0.4 times (Series 2010 Pro-Forma Debt: 0.3 times)

Expendable Financial Resources to Operations: 0.3 times (0.3 times)

Three-Year Average Operating Margin: -1.0% (0.3%)

Average Debt Service Coverage: 2.1 times (2.1 times)

Operating Reliance on State Appropriations (% of total operating revenues): 29.3% (29.1%)

State of New Jersey General Obligation Rating: Aa2, negative outlook

RATED DEBT

2001 Series H Revenue Bonds: rated A1; insured by MBIA

2001 Series G Revenue Bonds: rated A1

2004 Series B Revenue Refunding Bonds: rated A1; insured by Ambac

2010 Series H and Series I Revenue Refunding Bonds: rated A1

CONTACTS

University: Henry A. Mauermeyer, Senior Vice President and Treasurer, 973-596-3124

NJEFA: Mary Jane Darby, Director of Project Management, 609-987-0880

Underwriter: Oliver Zlomislic, Vice President, 212-762-8301

METHODOLOGY AND LAST RATING ACTION

The principal methodology used in rating New Jersey Institute of Technology, NJ was Public College and Universities rating methodology published in November 2006. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

The last rating action with respect to the New Jersey Institute of Technology was on June 15, 2010 when an A1 rating with a stable outlook was assigned.

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's information, 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 assigning 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

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

Leah Ploussiou-Chatzigiannis
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 ASSIGNS A1 RATING TO NEW JERSEY INSTITUTE OF TECHNOLOGY'S SERIES 2010H AND SERIES 2010I BONDS; OUTLOOK IS STABLE
No Related Data.
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