THE UNIVERSITY WILL HAVE $207.8 MILLION OF RATED DEBT INCLUDING SERIES 2011 BONDS
Florida Higher Educational Fac. Fin. Auth.
Series 2011 Educational Facilities Revenue and Refunding Bonds
Expected Sale Date
Private University Revenue Bonds
NEW YORK, Jan 19, 2011 -- Moody's has assigned a Baa2 rating to Nova Southeastern University's
(NSU) $84.16 million of Series 2011 Revenue bonds to be issued through the
Higher Educational Facilities Financing Authority, FL. We have also affirmed our
Baa2 underlying ratings on the University's previously issued fixed-rate debt,
listed at the end of this report. The University's rating outlook is stable.
Depending on the market conditions, NSU may also consider full or
partial refunding of Series 2000A, Series 2002A, Series 2004C (variable rate)
and Series 2000B (fixed rate) bonds.
RATINGS RATIONALE: The Baa2 rating reflects the University's consistently large
and diversified enrollment base, positive operating performance and healthy
market position with net tuition per student of $18,911. The rating also
incorporates the University's relatively thin financial resources and high
amount of variable rate debt relative to monthly liquidity.
LEGAL SECURITY: Loan payments are a general obligation of the
University, secured by a pledge of and first lien on pledged revenues,
which include tuition, fees, and dormitory revenues. Some of the University's
existing debt is further secured by debt service reserve funds which totaled
approximately $19 million in FY 2010. The University will have a debt service
reserve fund for Series 2011 bonds.
USE OF PROCEEDS: $59.16 million from the Series 2011 bonds may refund the
variable rate demand bonds outstanding Series 2000A, 2002A, and 2004C and fixed
rate bonds Series 2000B and pay the issuance costs. The remaining $25 million
will be used to purchase an already leased four-story, 75,000-square foot
student educational center in Palm Beach Gardens. The building is on schedule
for a summer 2011 opening and will be home to more than 1,400 students seeking
degrees in fields of pharmacy, business, education, mental health counseling,
and school psychology.
INTEREST RATE DERIVATIVES: None.
Detailed Credit Discussion:
*Large enrollment base of 23,334 full-time equivalent students (FTE) in fall
2010, a 33% increase over fall 2006 enrollment, with diversified degree and
program offerings. The University operates at multiple leased sites including
some in other states and international locations and offers a diverse array of
undergraduate, graduate, and professional degrees, including schools of
business, law, medicine, osteopathic medicine, dentistry, and pharmacy.
*Consistently favorable operating performance, driven by growth in net tuition
revenues. The cash flow margin, at 11.8%, provided strong debt service coverage,
with the three-year average debt service coverage of 3.4 times from FY
2008-FY 2010. Net tuition per student rose to $18,911 in FY 2010 from $17,795 in
FY 2008, driven by tuition increases coupled with rising enrollment. We expect
that NSU will continue to produce favorable operating performance and cash flow
with its strong student demand.
*Significant capital investment in recent years with an average capital spending
ratio of 4.3 between FY 2006 and 2010 resulting in relatively low age of plant
at 7.4 years.
*Some improvement in gift receipts, demonstrated by an average three-year gift
revenue of $10.8 million (11% higher than in FY 2008) as compared to Moody's FY
2009 median for Baa-rated institutions of $5 million. NSU hired a Vice President
for Development in December 2009 and is in the early stages of a
comprehensive fundraising campaign "Changing Lives and Changing the
World" with a total goal of $100 million over seven years.
*The University has a high amount of demand debt, including a large $58.09
million bank loan with Regions Bank, compared to relatively thin levels of
liquidity. Assuming the Series 2000A, 2002A, 2004C bonds are also refunded, the
University will have a lower amount of variable-rate debt (16% of debt), with
monthly liquidity in FY 2010 covering pro-forma demand debt 0.99 times.
*The University's unrestricted financial resource base remains relatively small
at $7.7 million at the end of FY2010, although the unrestricted cash position is
stronger with net assets depressed by various liabilities. Management reports
that the unrestricted monthly liquidity was $117 million in FY 2010, down from
$129 million in FY 2009, with monthly days cash at 83.5 days versus 92 days in
*Reliance on student charges, which comprise 83% of total operating revenue in
FY 2010, combined with the competitive student market (28% matriculation rate)
highlights vulnerability of operations to enrollment shortfalls. It also
stresses the importance of continued successful recruitment and retention of
students as well as the University's ability to continue to grow net tuition per
student in a challenging economic environment.
MARKET POSITION/COMPETITIVE STRATEGY: LARGE DIVERSIFIED ENROLLMENT BASE; HEALTHY
GROWTH OF NET TUITION PER STUDENT
Moody's believes that NSU is relatively well positioned to sustain its healthy
student market position. The University maintains strong demand from a
non-traditional student population and invests in increasing its traditional-age
student body. NSU's diversified programmatic offerings and location in the
Florida market are key credit strengths. In addition to its main campus located
in Fort Lauderdale/Davie (Broward County), NSU serves over 8,000 students at
other smaller Florida satellite centers, a site in Las Vegas, Nevada, as well as
149 "cluster sites" located in 23 U.S. states and eight countries. NSU
is a pioneer in the field of distance learning and serves approximately 5,000
students through its online program offerings with more than 15,000 unduplicated
courses offered in 25 degrees online. The University currently has active
distance education programs in 16 countries; in Puerto Rico, and in 24 states
OPERATING PERFORMANCE: CONSISTENTLY POSITIVE OPERATING MARGINS WITH HEAVY
RELIANCE ON STUDENT CHARGES
It is expected that the University will continue to produce positive
operating results in the coming years as experienced over the last few years
largely driven by growth in net tuition revenue and careful containment of
operating expenses and budget monitoring throughout the year. The University 's
three year average operating margin (FY2008-FY2010) was 3.9%. Cash flow has also
remained robust at 11.8% in FY 2010 providing average debt service coverage of
over 3.4 times.
The University's ability to further diversify its revenue base would be a
positive credit factor since student charges represent a high 83.3% of operating
revenue in FY 2010. NSU's management is proactive in controlling the
expenditures with expenses essentially flat between FY 2009 and 2010
BALANCE SHEET POSITION: THIN FINANCIAL RESOURCE BASE RELATIVE TO PRO-FORMA DEBT
AND OPERATIONS, ALTHOUGH CONTINUED OPERATING SURPLUSES EXPECTED TO HELP GROW
FINANCIAL RESOURCE CUSHION OVER TIME
NSU maintains a high amount of debt for its level of financial
resources, although debt service to operations was a manageable 3.6% in FY 2010.
Including the current bond issuance, the University has total pro-forma direct
debt totaling $372.8 million. The University also has a large amount of
operating leases, and pro-forma comprehensive debt increases to $449.6 million.
Expendable resources of $65.6 million in FY 2010 cover pro-forma direct debt by
0.18 times and cover expenses 0.12 times.
For FY 2010, the University's endowment achieved a 12.5% positive investment
return as compared to a negative 24.1% for FY 2009. The University utilizes
Colonial Consulting, LLC as its primary investment consultant.
NSU is in the mid phase of a major capital campaign with a $100 million goal.
Fundraising will be targeted to fund scholarships, academic program support,
faculty support, and other capital initiatives which include an aquatic center,
coral reef research facility, optometry clinic, arts/cultural center.
Management reports that to-date $27 million of gifts and pledges have been
received toward the campaign goal. The University's historic fundraising has
been modest relative to the size of enrollment and alumni base. Increased
philanthropic support and resulting balance sheet strengthening would be credit
The University has $58 million as a bank loan from Regions Bank with the bonds
issued through the Town of Davie. Although this debt is fixed-rate and amortizes
over 20 years, NSU could be required to purchase the full amount of outstanding
bonds on May 29, 2014, if the Bank decides to exercise this option. The
Bank must notify NSU by March 15, 2014 of its decision to tender the bonds.
These bonds are a general obligation of NSU, secured by Pledged Revenues
including tuition, and are on parity with the University's rated bonds which
were issued through the Broward County Educational Facilities Authority. In
addition to the tender option described above, the Bank can accelerate the debt
if an Event of Default within the Credit Agreement is breached.
Letters of credit supporting the University's Series 2008A , 2004C, 2000A
(expected to be refunded), and 2002A (expected to be refunded) variable rate
bonds contain a variety of events of default which if breached would allow the
bank to accelerate the debt and require immediate repayment by NSU. These events
of default include, but are not limited to: completion of audited financial
statements within 150 days after fiscal year end, other financial reporting
requirements, a final non-appealable order rendered against the University
(not covered by insurance) in excess of $500,000 unsatisfied for more than 30
days, entering into certain financial contracts including interest rate swap
agreements, and various financial covenants. These financial covenants include:
1) maintenance of a liquidity ratio of at least 0.3 times to be tested at 6/30
and 12/31 (0.47 times as of 6/30/10, and estimated to be 0.94 times by
management as of 12/31/10); 2) maintenance of a Federal Ratio of Financial
Stability of at least 1.9 times (2.36 as of 6/30/10); and 3) maintenance of at
least 1.9 times debt service coverage (3.09 times as of 6/30/10 as reported by
NSU). With the current refunding, the proportion of variable debt will decline
thereby reducing, to some extent, the potential challenges associated with
renewal of credit facilities and acceleration of repayment.
Moody's stable outlook anticipates that NSU will maintain its healthy student
market position, continue to generate cash flows that provide healthy debt
service coverage, and will have manageable borrowing plans. We also expect that
Nova Southeastern University will continue to grow its endowment through
fundraising initiatives and retention of surpluses.
What Could Change the Rating - UP
Significant growth of liquid financial resource base to provide stronger support
for debt and operations coupled with maintenance of strong operating cash flow
and debt service coverage; growth in revenue diversity
What Could Change the Rating - DOWN
Additional borrowing without commensurate growth of financial
resources; deterioration of student market position; breach of financial
covenants contained within letter of credit reimbursement agreements or
Regions Bank loan
KEY INDICATORS (fall 2010 enrollment data and FY 2010 audited financial data)
Full-time equivalent (FTE) enrollment: 23,334 students
Total financial resources: $83.08 million
Pro-forma Direct debt: $372.8 million
Expendable financial resources-to-pro forma direct debt: 0.18 times
Expendable financial resources-to-operations: 0.12 times
Three-year average operating margin: 3.9%
Three-year average debt service coverage: 3.4 times
Reliance on student charges (as a % of operating revenue): 83.3%
Series 2000B and 2002B: Baa2 rating, insured by Radian
Series 2004A: Baa2 rating, insured by Ambac
Series 2004B : Baa2
Series 2006: Baa2 rating, insured by Assured Guaranty
Series 2011: Baa2
Nova Southeastern University: Jeffrey Lowe, Treasurer, 954-262-5293
Financial Advisor: Timothy J. Kiley, Public Financial Management, 407-648-2208
Underwriter: H. Jay Bellwoar, BofA Merrill Lynch, 215-446-7042
The principal methodology used in this rating was Moody's Rating Approach for
Private Colleges and Universities published in September 2002.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, public information, confidential and proprietary
Moody's Investors Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Kimberly S. Tuby
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 Baa2 RATING TO NOVA SOUTHEASTERN UNIVERSITY'S (FL) SERIES 2011 REVENUE BONDS AND AFFIRMS Baa2 RATING ON OUTSTANDING DEBT; OUTLOOK IS STABLE
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