UNIVERSITY WILL HAVE A TOTAL OF $132 MILLION OF RATED DEBT OUTSTANDING
Board of Regents, State of Iowa
Dormitory Revenue Refunding Bonds, Series U.N.I 2010B
Expected Sale Date
Public Higher University Revenue
Dormitory Revenue Bonds, Series U.N.I 2010A
Expected Sale Date
Public Higher Education Revenue
NEW YORK, Dec 8, 2010 -- Moody's Investors Service has assigned an A1 rating to the University of
Northern Iowa's (UNI's) Dormitory Revenue Bonds, Series U.N.I. 2010A and
Dormitory Revenue Refunding Bonds, Series U.N.I. 2010B, issued by the Board of
Regents, State of Iowa. At the same time, we have affirmed the ratings of the
outstanding debt of the University (see RATED DEBT). The rating outlook
RATINGS RATIONALE: The University of Northern Iowa's A1 rating reflects its
market niche of undergraduate education and as an Iowa public
university, adequate financial resources and favorable operating performance and
good debt service coverage levels.
USE OF PROCEEDS: Proceeds of the Series 2010A Bonds will be used to pay project
costs of the first phase of a student housing facility, fund a debt service
reserve fund and pay the costs of issuance. Proceeds of the Series 2010B Bonds
will be used to advance refund certain maturities of the outstanding Series 2000
Dormitory Revenue Bonds, partially fund a debt service reserve fund and pay the
costs of issuance.
LEGAL SECURITY: The bonds are secured by a pledge of the net revenues of the
University's Dormitory System. The bonds are on parity with $16 million of
outstanding Dormitory Revenue Bonds. There is a Debt Service Reserve Fund.
INTEREST RATE DERIVATIVES: None
*Established market niche as one of three Iowa four-year public higher education
institutions, as well as the only one with an emphasis on undergraduate
education; moderate annual enrollment growth with total enrollment for Fall 2010
of 11,681 full-time equivalent (FTE) students, up from 10,835 in Fall 2006.
*Adequate financial resource coverage of debt, with Fiscal Year (FY) 2010
expendable financial resources covering proforma debt 1.0 times and operations
*Overall positive operating performance, with FY 2010 three-year average
operating margin of 3.5% and good cash flow reflected in a 14.5% operating cash
flow margin and acceptable average debt service coverage of 2.2 times for FY
*Pledged revenues provide good debt service coverage in FY 2010 on outstanding
bonds: Academic Building Revenue Bonds - 10.1 times coverage; Dormitory
Residence Bonds - 3.4 times; Student Union Revenue Bonds - 4.4 times; Student
Health Center Revenue Bonds - 9.7 times; Field House Revenue Bonds - 6.4 times.
*Expected enrollment challenges from weak state demographic environment and
projected decline in high school graduates coupled with strong competition from
higher education institutions within and outside Iowa.
*Continuation of healthy debt service coverage of auxiliary
systems, particularly residence halls in light of expected enrollment
challenge and competitive student market.
MARKET POSITION/COMPETITIVE STRATEGY: SOUND STUDENT DEMAND FROM ESTABLISHED
MARKET NICHE AS FOR IOWA PUBLIC UNIVERSITY ALTHOUGH FUTURE ENROLLMENT CHALLENGES
POSSIBLE FROM COMPETITION AND DECLINING STATE HIGH SCHOOL GRADUATES
We believe that University of Northern Iowa will continue to have sound student
demand from its important educational role within the State due to its
undergraduate emphasis as one of the three universities governed by the Iowa
Board of Regents, along with State University of Iowa (rated Aa1) and Iowa State
University (rated Aa2). Despite its niche, we believe UNI will face enrollment
challenges due to weak state demographics and competition from the other Iowa
public universities as well as nearby community colleges. Current projections
are for a 6% decline in high school graduates within the State of Iowa to 2018.
For Fall 2010, UNI reported enrollment of 11,681 FTEs, up from 10,835 in Fall
2006. Management is looking to increase headcount enrollment for each of the
next ten years. Since Fall 2007, UNI experienced a decline in freshman
applications that may be attributable to current economic conditions, as well as
the implementation of new admission standards by the Board of Regents for the
three Iowa public universities. Nonetheless, UNI experienced a
steady improvement in its percentage of accepted freshman who enrolled from
49.5% in Fall 2006 up to 58.0% for Fall 2010.
OPERATING PERFORMANCE: FAVORABLE OPERATING PERFORMANCE AND CASH FLOW PROVIDING
GOOD DEBT SERVICE COVERAGE
We expect the University's operating performance to remain at least balanced to
modestly positive, providing favorable cash flow to support debt service. For FY
2010, based on preliminary audit results, UNI produced a three-year average
operating margin of 3.5% for fiscal years 2008-2010, driven by strong
performance in FY 2010 from lower operating expenses from measures implemented
by UNI to address expected state funding reductions. Operating cash flow margin
was good at 14.5% for FY 2010 and debt service coverage is good, with average
annual debt service coverage of 2.2 times. We expect the University to continue
to produce sound debt service coverage based on active fiscal oversight.
UNI received a net state appropriation of $95.8 million in FY 2009, then in FY
2010 saw a $15.4 million reduction to $80.4 million. In the current year, FY
2011, the University received $79.0 million, a decrease of $16.7 million or 17.5
percent from FY 2009. For FY 2010 UNI received $12.4 million in ARRA
stimulus funds but will receive no federal ARRA funds for FY 2011. The
University implemented nearly $18 million of expense initiatives to bridge the
revenue gap, including division cuts and an early retirement program. The
efforts drove the improvement in operating performance for FY 2010 and should
keep FY 2011 performance at least balanced. We expect the University to continue
to produce favorable operating performance driven by tuition and auxiliary fee
increases, coupled with continued expense management.
Moody's currently maintains an Aaa issuer rating for the State of Iowa, with a
stable outlook. The rating is based on the State's debt levels that are amongst
the lowest in the nation and limits growth in fixed costs; it also has a
well-funded pension plan. The State has maintained funded budget reserves equal
to about 7% of FY 2010 revenues. The State also maintains two primary
reserve funds, its Cash Reserve Fund and the Economic Emergency Fund. The rating
also acknowledges an economy that is slowing but with job losses lagging the
national average. Iowa's below-average population growth (5.4% from 1990 to 2000
versus 13.1% for the nation) also limits its economy. For more information, see
Moody's report dated June 16, 2010.
BALANCE SHEET POSITION: ADEQUATE FINANCIAL RESOURCE BASE CUSHIONING DEBT AND
We expect UNI will continue to have adequate financial resources to cushion both
debt and operations. For FY 2010, UNI had $134 million of expendable financial
resources, up from $113 million the prior year. Expendable resources cushion
$134 million of proforma debt by 1.0 times and annual operating expenses by 0.5
times. University of Northern Iowa reported good liquidity for FY 2010 (at
6/30/2010), with $100 million of unrestricted funds available within one month
or 153 days cash on hand (see definition in Key Data section).
The Board anticipates issuing dormitory bonds for additional apartment housing
on behalf of the university in the next year.
The University entered the national phase of a fundraising campaign, with a $150
million total goal, with $75 million targeted for scholarships and $75 million
for programs. To date the University raised $110 million, with $55 million
in deferred gifts and $55 million in cash and pledges. Gift revenues have been
generally steady, with three-year average gift revenues of $9.5 million in FY
2008-2010. Not included is a $11 million cash gift received after fiscal
year end for a Literacy Center.
SECURITY PLEDGE: PLEDGED REVENUES PROVIDE ADEQUATE SECURITY UNDER VARIOUS
Moody's approach to rating the University's various series of bonds
includes analyzing both the sufficiency of legally pledged revenues as well
as the essentiality of the financed projects to the University. The University
is expected to continue to produce sound debt service coverage from pledged
revenues on its outstanding bonds.
*Academic Building Revenue Bonds are secured by gross student fees and charges,
as well as institutional income as defined in the documents to the extent that
student fees and charges are insufficient to meet annual debt service. There is
a debt service reserve fund. FY 2010 coverage was 10.1 times. There is a
cash-funded debt service reserve fund.
*Dormitory Revenue Bonds are payable solely from the net rents and revenues
derived from the operations of the University's student residence halls and
dining and incidental facilities. There is a debt service reserve fund. The
Board has covenanted to maintain 1.35 times coverage. FY 2010 coverage was 3.4
*Student Health Facility Bonds are secured by revenues provided from a mandatory
student fee and net revenues of the Student Health Clinic. The Board has
covenanted to a 1.2 times debt service coverage. FY 2010 coverage was 9.7 times.
There is a cash-funded service reserve fund.
*Field House Revenue Bonds are secured by revenues generated from student fees,
including a mandatory student fee, and the net revenues of the Field House
Enterprise. The Board has covenanted to a 1.2 times debt service coverage. FY
2010 coverage was 6.4 times. There is a cash-funded debt service reserve fund.
*Student Union Bonds are secured by revenues from a mandatory student fee and
the net revenues of the Student Union system. FY 2010 coverage was 4.4 times
compared to a 1.2 times covenant coverage. There is a cash-funded debt service
The stable rating outlook reflects our expectation of continued favorable debt
service coverage based on maintenance of stable enrollment and prudent expense
management resulting in positive cash flow generation.
What could change the rating--UP
Sustained increased enrollment, coupled with strengthened operations and cash
flow generation, significantly improved reserves, and limited additional
What could change the rating--DOWN
Deterioration of operating performance and cash flow, resulting in declining
debt service coverage; decreased enrollment and lack of resource growth
KEY INDICATORS (Preliminary FY 2010 financial results; Fall 2010 enrollment
Total Enrollment: 11,681 full-time equivalent students
Total Proforma Debt: $134 million
Expendable Resources to Proforma Debt: 1.0 times
Expendable Resources to Operations: 0.5 times
Monthly Liquidity: $100 million
Monthly Days Cash on Hand (unrestricted funds available within 1 month divided
by operating expenses excluding depreciation, divided by 365 days): 153 days
Three Year Average Annual Operating Margin: 3.5%
Share of Revenues from State Appropriations: 36.3%
State of Iowa Issuer Rating: Aaa, stable outlook
Academic Building Revenue Bonds, Series 1994, 1996, 2002, 2003, 2003A, 2005,
2008, 2009: rated A1
Academic Building Revenue Bonds, Series 2007: rated A1 (insured by Syncora
Dormitory Revenue Bonds, Series 1999, 2000, 2002, 2003, 2010A: rated A1
Dormitory Revenue Refunding Bonds, Series 2010, 2010B: rated A1
Field House Revenue Bonds, Series 2001, 2004, 2005: rated A1
Student Health Revenue Bonds, Series 2004: rated A1
Student Union Revenue Bonds, Series 2002: rated A1
University: Gary Shontz, Controller and Treasurer, 319-273-2000
Financial Advisor: Springsted Incorporated, Barry Fick, 651-223-3042
The principal methodology used in this rating was Public College and
Universities published in November 2006.
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.
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.
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Diane F. Viacava
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS A1 RATING TO THE UNIVERSITY OF NORTHERN IOWA'S DORMITORY REVENUE BONDS, SERIES U.N.I. 2010A AND DORMITORY REVENUE REFUNDING BONDS, SERIES U.N.I. 2010B; OUTLOOK IS STABLE
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