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Announcement:

Moody's affirms A1 rating on Montclair State University's (NJ) revenue bonds; outlook remains stable

19 Jun 2012

Rated debt affected is $353 million

New York, June 19, 2012 -- Moody's Investors Service has affirmed the A1 rating on Montclair State University's (MSU or the university) (NJ) revenue bonds issued through the New Jersey Educational Facilities Authority. The outlook remains stable.

SUMMARY RATING RATIONALE

The A1 rating reflects MSU's solid market position as the second largest public university in New Jersey, with healthy demand, strong operating performance, and continuing growth in net tuition revenues. These credit strengths are offset by a challenging state funding environment, narrow balance sheet cushion for debt and high operating leverage. The A1 rating also incorporates the credit implications of MSU's agreements with third party developers for strategic housing and energy projects, which are key to the university's core credit position and could potentially create future draws on university resources. The 1,978-bed student housing project, in particular, is strategic to the university's growth potential and MSU would likely act to assert control over the project if it functioned poorly in the future.

STRENGTHS

*Strong market position and healthy student demand highlighted through enrollment of 15,509 full-time equivalent (FTE) students in undergraduate and graduate programs at the regional public university located in Montclair, New Jersey, evidenced by good selectivity of 57% and matriculation of 33% for fall 2011.

*Robust cash flow operating margin of 19.9% for FY 2011 and operating margins averaging 9.8% from FY 2009 to FY 2011, as calculated by Moody's, provides ample average debt service coverage of 3.3 times over the same period.

*Flexibility in setting tuition and fee schedules (no state caps); net tuition and fees account for 61% of the university's operating revenues. Net tuition per student increased 14% from fall 2007 ($7,536) to fall 2011 ($8,594), among the lowest net tuition per FTE figures for New Jersey public universities, highlighting potential additional pricing power.

*Growing, albeit still modest, balance sheet resources with good unrestricted liquidity; expendable financial resources of $162.8 million for FY 2011 up 40% over FY 2008 and unrestricted monthly liquidity is favorable at $152.5 million or 203 monthly days cash on hand.

*Effective university leadership team that has a successful track record of executing complex integrated financial and capital plans in an era of weak state support.

CHALLENGES

*High debt and debt service costs, although not as high as some other New Jersey public universities, though mitigated by the strong annual cash flow. Annual debt service represented 7.1% of FY 2011 operations compared to the national A1-rated median of 5.0%.

*Likelihood of continuing future declines in operating support from the State of New Jersey (rated Aa3, stable), with the increase in FY 2012 only to support higher benefit costs paid by the state on behalf of the university, will require MSU to raise tuition regularly to offset state cuts and higher debt service.

*Balance sheet provides a narrow cushion for debt and operations. At the end of FY 2011, financial resources totaled $197.2 million, of which $162.8 million was expendable. Expendable resources cushion $428.2 million of debt (which includes a portion of the privatized housing project) by 0.4 times and operations by 0.6 times.

*Uncertainties in the future operations of the two public-private partnerships and reliance for major functional activities on outside entities and potential burden of financial and operational responsibility should one of the parties fail, represents significant economic risk.

*Limited debt capacity and additional capital needs, including a new School of Business and Center for Environmental and Life Sciences, though MSU is evaluating operating lease options for the former, and financing of the latter through a state-backed bond issue for higher education infrastructure.

Outlook

The stable outlook reflects Moody's expectation the university will maintain a strong market position as well as continue to produce positive operating performance, although the state funding environment, high leverage and debt service burden will remain challenges. Our stable outlook incorporates the expectation that the housing and energy projects will meet performance objectives, with no adverse impacts on the university's operations.

WHAT COULD CHANGE THE RATING UP

Significant increase in financial resource levels resulting in stronger coverage of debt and operations, maintenance of robust operating performance and double digit cash flows to provide solid debt service coverage; enhanced fundraising

WHAT COULD CHANGE THE RATING DOWN

Deterioration of balance sheet cushion, declines in operating margins and debt service coverage, weakening of student demand, negative events attributable to the housing or energy projects; significant cuts in state appropriations for which the university cannot compensate; downgrade of the state's rating

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the 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, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Mary Katherine Cooney
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Diane F. Viacava
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms A1 rating on Montclair State University's (NJ) revenue bonds; outlook remains stable
No Related Data.
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