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Announcement:

Moody's affirms Albright College's Ba1 rating on Series 2004 bonds; outlook revised to negative from stable

23 Jul 2012

Rated debt affected totals $15.9 million

New York, July 23, 2012 --

Moody's Investors Service has affirmed the Ba1 long-term rating on Albright College's Series 2004 Revenue Bonds issued through the Berks County Municipal Authority. The outlook is revised to negative from stable.

SUMMARY RATING RATIONALE

The Ba1 rating reflects the college's healthy operating performance and debt service coverage, and adequate balance sheet coverage of debt at the rating level with expectations for continued growth through ongoing fundraising. The rating and negative outlook also incorporate the weakening student market for fall 2012 that will require expense reductions to balance the budget; variable rate debt exposure with $25.5 million of private placement bonds with a mandatory tender in December 2013; and low liquidity coverage of demand debt.

CHALLENGES

*Competitive student market with weak demographics and many public and private competitors, as evidenced by a low yield of 17.2% as of fall 2011. For fall 2012, management expects traditional undergraduate enrollment will be 40 students short of the 1,660 target as competition intensifies. Management will increase the admissions budget for FY 2013 to support additional recruitment.

*Due to a high dependence on net tuition revenue (representing 88% of total operating revenue in FY 2011 per Moody's calculation), missing the enrollment target for fall 2012 is expected to cause $800,000 to $1.2 million operating revenue shortfall in FY 2013. Management expects to offset this gap through expense cuts.

*Very thin liquidity coverage of demand debt. Monthly liquidity was $15.3 million in FY 2011, providing only 59% coverage of demand debt, well below the 98% FY 2010 median for private colleges rated Ba and below. This low coverage is particularly relevant given the December 2013 mandatory tender on the 2008 private placement bonds.

*Negative unrestricted resources per Moody's calculation, though there was growth in FY 2011 over the prior three years. Unrestricted financial resources were negative $4.9 million in FY 2011, up from negative $10 million in FY 2010.

STRENGTHS

*Healthy operating performance, with a 12.8% operating cash flow margin in FY 2011 providing 2.25 times debt service coverage, reflective of strong managerial controls. However, operating performance and debt service coverage in FY 2011 was weaker than the past three years. Management projects FY 2012 performance will be similar to FY 2011, though we note future budget pressure expected in FY 2013 due to lower fall 2012 enrollment.

*Albright offers an accelerated degree programs (ADP) to non-traditional students at satellite campuses in Pennsylvania, and was selected by the City of Mesa, Arizona (Aa2/stable) to implement an ADP program there starting in fall 2012 with a projected 36 students initially.

*Expendable financial resource growth provided improved coverage of direct debt in FY 2011 at 0.32 times, up from 0.03 times the year before.

*Strengthened fundraising expected to continue, which will support continued financial resource growth. Total gift revenue was $6.4 million in FY 2011, up from $2 million the prior year.

Outlook

The negative outlook reflects Moody's expectation that Albright will continue to see enrollment pressure given its competitive student market position, which may ultimately lead to narrower operating margins. The outlook also captures the low liquidity to demand debt given the need to remarket the Series 2008 bonds in December 2013. The outlook could return to stable following the successful repositioning of bank agreement exposure, if other fundamental strengths remain within expectations.

WHAT COULD MAKE THE RATING GO UP

Reduced debt structure risk, through restructuring of the Series 2008 bonds to reduce remarketing risk or increased liquidity; stable enrollment and net tuition per student growth; substantial growth of the financial resource base, particularly through fundraising; cost controls and steady net tuition revenue growth leading to stable operating performance

WHAT COULD MAKE THE RATING GO DOWN

Failure to remarket the Series 2008 bonds; deterioration of student market position; weakening of operating performance; increases in debt without offsetting growth in financial resources levels

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.

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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.

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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.

Emily Schwarz
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

Dennis M. Gephardt
Vice President - Senior Analyst
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 Albright College's Ba1 rating on Series 2004 bonds; outlook revised to negative from stable
No Related Data.
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