UNIVERSITY WILL HAVE A TOTAL OF $125 MILLION OF RATED DEBT OUTSTANDING
Board of Regents, State of Iowa
Student Union Revenue Refunding Bonds, Series U.N.I. 2011
Expected Sale Date
Public University Revenue
NEW YORK, Jul 29, 2011 -- Moody's Investors Service has assigned an A1 rating to the University of
Northern Iowa's (UNI's) Student Union Revenue Refunding Bonds, Series U.N.I.
2011, 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 is stable.
SUMMARY RATINGS RATIONALE: The University of Northern Iowa's A1 rating reflects
its importance as one of the three public universities in the State of Iowa
offering primarily undergraduate education, its adequate financial resources and
favorable operating performance and good debt service coverage levels. These
strengths are offset by a challenging competitive market and demographic
landscape as well as recent declines in state support.
*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
*Adequate balance sheet reserves with Fiscal Year (FY) 2010 expendable financial
resources covering pro-forma debt 1.1 times and operations 0.5 times.
*Trend of positive operating performance, with three-year average operating
margin of 3.4% for FY 2008-2010 and a 14.5% operating cash flow margin providing
acceptable average debt service coverage of 2.2 times for FY 2008-2010. The
University expects similar results in FY 2011.
* Pledged Revenues provide healthy 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
*A larger than expected decline in state support, a primary source of revenue
for the University, for FY 2012 will increase the need for ongoing operating
*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.
*Competitive student market puts pressure on the University's ability to
continue to provide healthy debt service coverage of auxiliary
systems, particularly residence halls.
DETAILED CREDIT DISCUSSION:
USE OF PROCEEDS: Proceeds of the Series 2011 Bonds will be used to refund the
outstanding Series 2002 Student Union 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 Student Union Fees. There is a Debt Service Reserve Fund.
INTEREST RATE DERIVATIVES: None
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 - it holds an 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 with a budgeted increase of 150 additional students for Fall
2011. As of July 27, 2011, Management reported that it was on target to meet the
budgeted enrollment increase. 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. Management reports that applications for
the Fall 2011 class are up by 173 as of July 27, 2011. UNI has 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, 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 providing a
healthy average annual debt service coverage of 2.2 times. We expect the
University to continue to produce sound debt service coverage based on active
Moody's believes that the deeper than expected cuts in state support for FY 2012
will put pressure on UNI's operating performance, but notes that the University
has already taken several steps to eliminate expenses in response to the cuts.
State support is a primary revenue source for the University, representing 35.5%
of total operating revenues as calculated by Moody's for FY 2010. Since FY
2000, UNI's state appropriation has been cut seven times and funding has
decreased a total of $23.6 million, or 24 percent since FY 2007. UNI will
receive a net state appropriation of $74.7 million for its General Educational
Fund in FY 2011, a 5.5 percent cut from the $79.0 million in state
appropriations for FY 2011. In FY 2010, the University implemented nearly
$18 million of expense initiatives to bridge the revenue gap,
including elimination of a division and an early retirement program. The efforts
drove the improvement in operating performance for FY 2010 and FY 2011.
Management's preliminary results for FY 2011 show another modest surplus which
will help cushion cuts to state appropriations. The University has already taken
action to reduce expenses for FY 2012, including the consolidation of several
academic programs and the reallocation of internal resources across the
University. 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 pro-forma 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 150 days cash on hand (see definition in Key Data section).
The Board anticipates issuing approximately $24.5 million in dormitory bonds for
additional apartment housing on behalf of the university in the next six months.
In October 2008, the University entered the national phase of a fundraising
campaign, with a $150 million total goal. As of June 30, 2011, the University
raised $130 million, with $59 million in deferred gifts and $71 million in
cash and pledges. Gift revenues have been generally steady, with Moody's
calculated 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
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. 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 cash-funded debt service reserve
fund. The Board has covenanted to maintain 1.35 times coverage. FY 2010 coverage
was 3.4 times.
*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 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 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 MAKE THE RATING GO UP
Sustained increased enrollment, coupled with strengthened operations and cash
flow generation, significantly improved reserves, and limited additional
WHAT COULD MAKE THE RATING GO DOWN
Deterioration of operating performance and cash flow, resulting in declining
debt service coverage; decreased enrollment and lack of resource growth
KEY INDICATORS (FY 2010 financial results; Fall 2010 enrollment data)
Total Enrollment: 11,681 full-time equivalent students
Total Pro-forma Debt: $126.8 million
Comprehensive Debt: $132.5 million
Expendable Resources to Pro-forma Debt: 1.06 times
Expendable Resources to Operations: 0.52 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): 150 days
Three Year Average Annual Operating Margin: 3.5%
Share of Revenues from State Appropriations: 35.5%
State of Iowa Issuer Rating: Aaa, stable outlook
Academic Building Revenue Bonds, Series 1994, 2005, 2008, 2009: rated A1
Academic Building Revenue Refunding Bonds, Series 1996, 2002, 2003, 2003A, 2005:
Academic Building Revenue Bonds, Series 2007: rated A1 (insured by Syncora
Dormitory Revenue Bonds, Series 2003, 2010A: rated A1
Dormitory Revenue Refunding Bonds, Series 2002, 2010, 2010B: rated A1
Field House Revenue Bonds, Series 2004, 2005, 2011: rated A1
Student Health Revenue Bonds, Series 2004: rated A1
Student Union Revenue Bonds, Series 2002: rated A1 (to be refinanced through
current bond issuance)
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. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
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Public Finance Group
Moody's Investors Service
Diane F. Viacava
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
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MOODY'S ASSIGNS A1 RATING TO THE UNIVERSITY OF NORTHERN IOWA'S STUDENT UNION REVENUE REFUNDING BONDS, SERIES U.N.I. 2011; OUTLOOK IS STABLE
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