TOTAL RATED DEBT OUTSTANDING IS $73.3 MILLION
Georgia Private Colleges & Universities Auth.
NEW YORK, Nov 23, 2010 -- Moody's Investors Service has downgraded Agnes Scott College's
("Agnes Scott" or the "College") rating to A2 from A1 on the
Series 1999 and 2004 A & B Bonds issued through the Georgia Private Colleges
and Universities Authority (please refer to the RATED DEBT section). The
downgrade reflects stagnant financial resource growth coupled with a high debt
burden, prolonged operating deficits, and a challenged student market
position evidenced by low and declining net tuition per student, high
discount rate, and deteriorating enrollment demand metrics. The rating outlook
is stable at the lower rating level.
RATING RATIONALE: The A2 rating with a stable outlook reflects the College's
large financial resource base, a key factor underpinning the rating and
offsetting challenges of a small enrollment base, a highly competitive and
challenged student market position, and consistently imbalanced operating
performance and weak cash flow, as calculated by Moody's.
LEGAL SECURITY: The Series 2004 A and B bonds are unsecured general obligations
of the College. For the Series 1999 bonds, the College has pledged all of its
Certain Unrestricted Revenues (tuition and fees, unrestricted contributions,
auxiliary enterprises and other revenues of the unrestricted net asset class
under Generally Accepted Accounting Principles). Moody's notes that the
College amended the security feature to include temporarily restricted net
assets due to the reclassification of net assets under UPMIFA, which
Georgia adopted for FY 2009. The Series 2009 bonds, which are not rated by
Moody's and were issued to partially refund the Series 1999 bonds, are
subordinate to the Series 1999 bonds. There is no debt service reserve fund
securing the Series 1999 and 2004 bonds.
INTEREST RATE DERIVATIVES AND DEBT STRUCTURE: The College has $11.6 million of
Series 2004B variable rate demand bonds outstanding, supported by a letter of
credit from Wells Fargo Bank (rated Aa2/P-1) expiring on October 1, 2011. The
Reimbursement Agreement contains various events of default, which if breached,
could result in acceleration of the bonds and immediate repayment required
by Agnes Scott. The Agreement also contains a financial covenant requiring the
College to have a ratio of its unrestricted and unencumbered investments and
cash to its current and long-term debt (including capital leases) of not less
than 1.50 times at the end of each fiscal year based on audited financial
statements. As of June 30, 2010, the College was in compliance with the
financial covenant with coverage of 2.96 times. Moody's notes that the College
has Agnes Scott does not have any interest rate derivatives outstanding.
*Prolonged operating deficits, with a calculated margin of -15.2%, by Moody's
calculation, for FY 2008-2010. The College budgets for breakeven performance.
However, the consistent deficits calculated by Moody's reflects an endowment
spend rate of 6% annually compared to Moody's standard 5% endowment spend rate
and only partially budgeting for depreciation. Agnes Scott is building reserves
into its budget for depreciation, and its enrollment coupled with expense
reductions led to a less severe annual operating deficit of -8.6% in FY 2010.
Over the next five to ten years the College plans to gradually reduce its
endowment spend; however it is expected to remain slightly above the 5%
industry standard spend rate.
*A very small enrollment base of approximately 900 FTE students, which Moody's
believes makes the College's financial position more vulnerable to fluctuations
in enrollment. Agnes Scott, a small liberal arts college for women in Decatur,
Georgia, a suburb of Atlanta, primarily serves students at the undergraduate
level. As a women's college, Agnes Scott has a relatively narrow market niche
and has experienced pressure on its total enrollment reflected in its low
matriculation and retention rates. Further, the College substantially
discounts its tuition to respond to a highly competitive student market
position, which was 60.1% in FY 2010 and has led to a low net tuition per
student of $11,552 in FY 2009 dramatically lower than Moody's median of $21,291
for small A-rated private colleges and universities.
*Decline in financial resources since FY 2007, with expendable financial
resources of $173.7 million in FY 2010 compared to $276.9 million in FY 2007.
Further expendable financial resources have not grown back to FY 1999- FY 2001
levels of over $300 million. We would expect the College's financial resource
growth to remain stagnant going forward given the continued endowment draws of
*Modest gift revenue relative to its A-rated peers. The College averaged over
three-years a gift revenue of $7.3 million in FY 2010. Agnes Scott currently is
in the quiet phase of a comprehensive campaign to raise funds for scholarships,
endowment, and capital projects. The goal of the campaign is $125 million, which
is significantly greater than the $60 million goal for the College's last
fundraising campaign that ended in 2004 with approximately $70 million raised.
*Modest revenue diversity and relatively high dependence on investment income
for operations, with investment income representing 36.3% of Moody's adjusted
operating revenues. Other revenue sources include tuition and auxiliaries at
46.1%, gifts at 13.4%, and other sources at 4.2%.
*Solid balance sheet and liquidity profile despite a 31.3% decline in expendable
financial resources from FY 2008. In FY 2010, expendable financial resources of
$173.7 million cushion debt and operations 2.4 times and 3.8 times,
respectively. The College also has robust monthly liquidity of $41.2
million which translates into 380 monthly days cash on hand. Additionally, the
College's monthly liquidity provides a healthy 3.65 times coverage of demand
debt, which represents $11.6 million of total debt outstanding.
*Two consecutive years of enrollment growth after several years of enrollment
declines. In fall 2010 the College enrolled 909 full-time equivalent (FTE)
students, a 6.8% increase from FY 2009 and the largest total enrollment at the
College in five years. Over eight years, the College's FTE enrollment has
averaged approximately 893 students. Agnes Scott's ten year plan is to increase
total enrollment FTEs to 1,100 by FY 2020 and over the past two fiscal years
management has engaged an enrollment consultant, as well as has focused on
retention to improve and grow its total enrollment. Moody's notes that the
College is conducting a search for a new Vice President of Enrollment.
Management does not expect the open position, currently filled with an interim
vice president, or transition to negatively impact enrollment.
*Improved Board oversight of budgeting process, with the College now using a
multi-year budgeting process and produces multiple budget scenarios for the
Effective in FY 2009, the state of Georgia adopted the Uniform
Prudent Management of Institutional Funds Act (UPMIFA), which resulted in a
reclassification of $176.8 million of the College's unrestricted financial
resources to temporarily restricted resources during FY 2009. This
reclassification, with investment losses incurred in the year, resulted in a
dramatic decline in unrestricted financial resources. However, the
reclassification had no impact on expendable resources, with the lower
expendable financial resources due to investment losses and endowment draw.
The stable outlook at the lower rating reflects the College's large
financial resource base providing strong coverage for both debt and
operations, and recent enrollment growth.
What Could Change the Rating - UP
Enrollment and net tuition revenue growth, improved operating performance, total
revenue growth, and balance sheet improvement
What Could Change the Rating - DOWN
Further deterioration in the balance sheet profile; continued stress on student
market reflected in enrollment or net tuition revenue declines; failure to meet
fundraising goals or pressure on the fundraising campaign
KEY INDICATORS (FY 2010 financial data and fall 2010 enrollment data)
Total Full-Time Equivalent (FTE) Enrollment: 909 students
Freshmen Applicant Acceptance Rate: 50.4%
Freshmen Matriculation Rate (accepted students enrolled): 24.8%
Net Tuition per Student: $11,509
Total Direct Debt: $73.3 million
Expendable Financial Resources: $173.7 million
Total Financial Resources: $239.4 million
Expendable Resources to Direct Debt: 2.37 times
Expendable Resources to Operations: 3.82 times
Monthly Liquidity: $41.2 million
Monthly Days Cash on Hand (unrestricted funds available within 1 month divided
by operating expenses excluding depreciation, divided by 365 days): 380.1 days
Three-year Average Operating Margin: -15.2%
Total Operating Revenue: $41.8 million
Operating Cash Flow Margin: 12.2%
Three-Year Average Debt Service Coverage: 0.52 times
Reliance on Student Charges (% of Operating Revenues): 46.1 times
Reliance on Investment Income (% of Operating Revenues): 36.3 times
Series 1999: A2; insured by MBIA Insurance Corporation
Series 2004A and 2004B: A2
College: John Hegman, Vice President Business and Finance, (404) 471-6278
The principal methodology used in this rating was Moody's Rating Approach for
Private Colleges and Universities published in September 2002.
The last rating action with respect to Agnes Scott College was on June 23, 2009
when the A1 rating was affirmed and the outlook was revised to negative from
stable. That rating was subsequently recalibrated to A1 with a negative outlook
on May 7, 2010.
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.
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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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Erin V. Ortiz
Public Finance Group
Moody's Investors Service
Diane F. Viacava
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S DOWNGRADES AGNES SCOTT COLLEGE'S (GA) RATING TO A2 FROM A1; OUTLOOK IS STABLE
Moody's Investors Service
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New York, NY 10007