ACTION AFFECTS $60.9 MILLION OF RATED DEBT OUTSTANDING
Louisiana Public Facilities Authority
NEW YORK, Aug 26, 2011 -- Moody's Investors Service has placed Southern University System's A2
issuer rating and A3 debt rating on Watchlist for possible downgrade. The rating
action affects $60.9 million of rated debt issued through Louisiana Public
Facilities Authority. We expect to conclude our review within 90 days. Over the
next 90 days, we will focus on fall 2011 enrollment and management's actions to
reduce expenses in light of pressured revenue.
SUMMARY RATING RATIONALE:
This rating action is prompted by reports that the System is exploring declaring
financial exigency for its Baton Rouge campus, which comprises 51% of the
System's headcount enrollment. Consideration of such a measure indicates
material financial deterioration since fiscal year end 2010. It also implies a
limited ability to further reduce expenses to offset cuts in state funding and
declining enrollment. Double digit declines in state appropriations and
pressured tuition revenue will continue to challenge financial performance and
reserves in FY 2012.
DETAILED CREDIT DISCUSSION
The Series 2006 bonds are payable from lease payments from the Board
of Supervisors of the Southern University System to the Developer, Millennium
Housing, LLC. The Southern University System Foundation is the sole member of
Millennium Housing. Under the terms of Cooperative Endeavor and Lease Agreement,
the lease term begins on the date of bond issuance and provides an option for
the Board to purchase the facilities. The bonds will also be secured by a debt
service reserve fund equal to maximum annual debt service. Under the
Indenture, the System will also fund from its resources a Rental Deposit Fund
equivalent to six months of debt service. The Rental Deposit Fund would be drawn
if necessary in the case of timing gaps before the Debt Service Reserve Fund.
Lease payments are payable from Legally Available Funds of the Board, including
state appropriations, tuition charges, auxiliary revenue and other sources. As a
result, the lease payments are effectively payable from all Legally Available
funds of the entire System and the rating is based on this broader revenue
If Legally Available Funds are not expected to be sufficient to make
lease payments, the Board has covenanted to include in its budget request to the
Louisiana legislature amounts sufficient, together with Legally Available Funds,
to make each lease payment. In the event the Legislature fails to appropriate
sufficient funds which, together with Legally Available Funds, would enable
lease payments, the Board would adopt a resolution stating there had been an
event of non-appropriation and the Lease would terminate on the last day of that
The lease is not subject to cancellation in the event of damage or
destruction of the facilities. The Developer will maintain property insurance in
an amount sufficient to pay all Series 2006 bonds outstanding.
KEY INDICATORS (FY 2010 financial results and Fall 2009 enrollment)
Total Enrollment: 14,712 full-time equivalent students
Total Comprehensive Debt: $183.5 million
Expendable Financial Resources: -$45.6 million ($20.3 million excluding the
impact of $65.9 million OPEB liability)
Total Cash and Investments: $48.8 million
Expendable Financial Resources to Comprehensive Debt: -0.25 times (0.11 times
excluding the impact of $65.9 million OPEB liability)
Expendable Financial Resources to Operations: -0.20 times (0.09 times excluding
the impact of $65.9 million OPEB liability)
Three-Year Average Operating Margin: -10.5%
Operating Cash Flow Margin: 6.0% (excluding the impact of $15.2 million OPEB
Reliance on State appropriations: 39.8%
State of Louisiana General Obligation Rating: Aa2, stable
Series 2006: A3
Southern University System: Kevin Appleton, Vice President for Finance and
Business Affairs (225-771-5550)
PRINCIPAL RATING METHODOLOGY
The principal methodology used in this rating was Moody's U.S. Not-for-Profit
Private and Public Higher Education Rating Methodology published in August 2011.
Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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 PLACES SOUTHERN UNIVERSITY SYSTEM'S (LA) A2 ISSUER RATING AND A3 DEBT RATING ON WATCHLIST FOR POSSIBLE DOWNGRADE
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