University has $405.5 million of rated debt
New York, December 20, 2012 -- Moody's Investors Service has affirmed its A1 rating on the University
of Akron's 2011 Student Housing Lease Revenue Bonds and all Moody's
rated General Receipts Bonds. The outlook is revised to stable
from negative.
SUMMARY RATINGS RATIONALE
The A1 rating reflects the University of Akron's large enrollment
base and positive operating performance that successfully offset state
funding cuts in FY 2012. The university's strong reputation
in Science, Technology, Engineering, and Mathematic
(STEM) degree programs contributed to growth in student demand over the
last four years and has enabled the university to grow net tuition revenue.
These strengths are counterbalanced by high balance sheet and operating
leverage and ongoing pressure on state funding. The outlook has
been revised to stable from negative reflecting multi-year improvement
in operating performance and sustained growth in tuition and fee revenue.
STRENGTHS
* Positive operating performance with growth in operating revenues
offsetting a 14.8% reduction state funding in FY 2012.
Even with this reduction in state aid, the university was able to
hold its operating cash flow margin at a healthy 14.5% in
FY 2012 compared to 8.8% in FY 2009.
* Large enrollment base with over 22,000 full-time equivalent
students enrolled in fall 2012, though enrollment in fall 2012 was
down from the previous year by 3.4%. Even with this
dip, enrollment over the last four years has grown by 12%
from 20,058 full time equivalent students (FTEs) in Fall 2008 to
22,430 in Fall 2012. Driving this increased enrollment is
the wide range of program offerings, including engineering and research
centers and an honors college.
* Large base of operating revenues and a broad General Receipts pledge
continues to support $403.4 million of outstanding General
Receipts bonds. In FY 2012, General Receipts totaled $378.2
million compared to $33.8 million of maximum annual debt
service.
* Conservative debt structure. All variable rate demand was
refunded into a fixed rate structure in FY 2011 and there are currently
no outstanding interest rate swap agreements.
CHALLENGES
*Highly leveraged balance sheet due to aggressive borrowing as part
of a comprehensive $700 million campus improvement plan over the
last 13 years. Since most projects are now complete, unrestricted
financial resources to direct debt has improved slightly from 0.14
times in 2009 to 0.24 times in FY 2012. This ratio,
however, remains below Moody's calculated median of 0.39
times for A1 rated public universities.
* Thin operating revenue cushion to overall debt and average annual
debt service. Debt to operating revenues was at 0.95 times
at FY 2012, well above the Moody's calculated A1 median of
.62 times. The university's average annual debt service
coverage was 2.14 times in FY 2010-2012.
*Challenged market position with decreasing student demographics in
the region and strong competition with Ohio's many public and private
colleges and universities. Efforts to increase retention rates
and improve student quality may result in short-term enrollment
challenges.
*Low freshmen to sophomore retention rates currently at 66%
as of Fall 2012 could challenge further growth in tuition revenue and
possibly result in state funding cuts if the state of Ohio decides on
performance based allocation of funds.
OUTLOOK
The outlook has been revised to stable from negative reflecting multi-year
improvement in operating performance and sustained growth in tuition and
fee revenue.
WHAT COULD MAKE THE RATING GO UP
Increased student demand reflected in growth in student enrollment and
retention rates. Strengthening of operating performance and financial
resources to support high amount of debt, continued growth in net
tuition and other operating revenues.
WHAT COULD MAKE THE RATING GO DOWN
Weakened student demand reflected in multi-year enrollment trends;
deterioration in operating performance resulting in weaker operating cash
flow generation and debt service coverage; decrease in net tuition
revenues. Also, further capital spending without strengthening
its balance sheet resources and liquidity. Downgrade of the state
or further reductions in state appropriations.
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
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
Please see the credit ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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.
Heidi Wilde
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
Kimberly S. Tuby
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 the University of Akron's General Receipts Bonds and Student Housing Lease Revenue Bonds; outlook is revised to stable from negative
