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Rating Action:

Moody's assigns A2 rating to Rowan University's (NJ) $60 million Lease Revenue Bonds (Rowan University School of Osteopathic Medicine Project), Series 2013; outlook is revised to stable from negative

03 Jun 2013

University will have $595.1 million of rated debt outstanding

New York, June 03, 2013 --

Moody's Rating

Issue: Lease Revenue Refunding Bonds (Rowan University School of Osteopathic Medicine Project) Series 2013A; Rating: A2; Sale Amount: $25,915,000; Expected Sale Date: 6-11-2013; Rating Description: Revenue: Public University Broad Pledge

Issue: Lease Revenue Refunding Bonds (Rowan University School of Osteopathic Medicine Project) (Federally Taxable) Series 2013B; Rating: A2; Sale Amount: $31,275,000; Expected Sale Date: 6-11-2013; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service has assigned an A2 rating to Rowan University's (Rowan's) Lease Revenue Refunding Bonds (Rowan University School of Osteopathic Medicine Project), Series 2013A and Federally Taxable Series 2013B issued through the Camden County Improvement Authority. At this time, Moody's has also affirmed the university's outstanding debt obligations. The rating outlook is revised to stable from negative.

SUMMARY RATING RATIONALE

Rowan University's A2 rating reflects its growing market position with established student demand for existing programs and expected favorable demand for its schools of medicine, with enrollment growth driving growth in operating revenues. On July 1, 2013 Rowan will acquire the School of Osteopathic Medicine (SOM) upon the dissolution of University of Medicine and Dentistry of New Jersey (UMDNJ), with the current debt issuance to be used to refund SOM's portion of UMDNJ's outstanding debt. Rowan's effective management of SOM's integration and its overall operations is expected to result in consistently positive operating performance and strong cash flow generation that will provide adequate debt service coverage. It is also expected Rowan will continue to report favorable unrestricted liquidity. Challenges are extremely high leverage relative to the balance sheet and revenues, with a high debt service burden driving the need to see continued revenue and cash flow growth, as well as expected new debt during the next year to fund its match for state capital funds.

The A3 rating on Rowan's Lease Revenue Bonds (Rowan University Project), Series 2012 bonds is one level below its A2 long-term rating and is based on the capital lease under which debt service is payable solely from the lease payments made by Rowan University. The one notch rating differential reflects the complex debt structure with debt held at different special purpose limited liability corporations, an issuing authority from outside the State of New Jersey, MACQ (the borrower), three single purpose limited liability corporations that own the leased facilities, and the Borough of Glassboro which owns the land on which the facilities are located and leased through a 99 year ground lease to the Lessor and subleased to the University. Also factored is the risk of early termination or abatement of the Master Lease Agreement and the related lease payments paid by Rowan.

The stable outlook reflects expectations of management's successful oversight and integration of SOM and commensurate growth of Cooper Medical School, steady strong student demand with enrollment growth driving increased revenues, maintenance of healthy operating cash flow to adequately service debt, and continued slow growth of balance sheet resources.

STRENGTHS

*Solid platform for successful integration of School of Osteopathic Medicine into Rowan, with integration teams addressing all aspects of the transition, including running parallel accounting and information systems to ensure full function at the cutover date of July 1, 2013. The university brought in a vice president of health sciences, a new position to the university, with immediate responsibility for coordination of the integration process.

*Established student market position as regional public university in southern New Jersey, with enrollment of 10,000 full-time equivalent (FTE) students for fall 2012, up from 8,854 in fall 2008. Enrollment will rise to over 11,000 following the acquisition of SOM. The acquisition of SOM will uniquely place Rowan as one of only two universities in the US providing both allopathic and osteopathic medicine, with known academic program strength in engineering, sciences, education and fine arts.

*Strong operating cash flow generation, with a 24.5% operating cash flow margin for FY 2012 providing an adequate 1.58 times annual debt service of the high debt service burden. Cash flow is projected to continue to be strong, with expectations of positive cash flow from SOM.

*Growing, albeit slow, balance sheet resources and good unrestricted liquidity, with expendable financial resources of $169 million for FY 2012, up from $159 million the previous year; unrestricted monthly liquidity is favorable at $165 million or 257 days. Following the acquisition, expendable resources to debt rises slightly to 0.31 times but unrestricted monthly liquidity relative to expenses falls to 191 days, representing still favorable liquidity.

*State support for Rowan with New Jersey providing direct operating appropriations, although declining, continued payments of employee benefits, substantial promised capital funding following years of no new appropriations and funding for debt service for Rowan's Cooper Medical School.

CHALLENGES

*Extremely high balance sheet and operating leverage reflecting Rowan's need to self-fund capital projects due to the lack of historical state capital funding. For FY 2012, expendable resources cushion pro-forma debt (including the current Series 2013 bonds) only 0.26 times, while pro-forma debt-to-revenues is an extremely high at 2.38 times. Leverage improves modestly but remains high at 0.31 times and 1.71 times, respectively, when considering consolidated results including the SOM.

*Operational challenge of integrating the School of Osteopathic Medicine into its operations while continuing to build enrollment in its new allopathic medical school (Cooper Medical School) as it enrolls its second class this upcoming fall 2013. Operations at both medical schools is reliant on state support that is subject to annual approval and therefore vulnerable to reductions in a fiscally challenging year.

*Expected debt of up to $60 million within the next year to fund Rowan's match to up to $117 million of state capital funding.

*Likelihood of stagnant to declining state operating support (State of New Jersey GO rated Aa3, stable), with the increase in FY 2012 and 2013 generally only supporting higher benefit costs paid by the state on behalf of the university.

OUTLOOK

The stable outlook reflects expectations of the successful integration of SOM and growth of Cooper Medical School according to plan, strong student demand with enrollment growth

driving increased revenues, maintenance of strong operating cash flow from strong fiscal oversight to adequately service debt and continued slow growth of balance sheet resources.

WHAT COULD CHANGE THE RATING UP

Successful integration of the School of Osteopathic Medicine and achieving full enrollment at the Cooper Medical School; continued robust operating cash flow with adequate debt service coverage, enrollment growth resulting in growth in net tuition revenue, higher research activity and a rise in balance sheet resources and liquidity resulting in a greater cushion relative to debt and operations.

WHAT COULD CHANGE THE RATING DOWN

Any additional borrowing plans; stagnant net tuition revenues and declining net tuition revenues; material declines in state support for operations or debt service payments; diminishment of balance sheet resources and liquidity; downgrade of the rating of the State of New Jersey

RATING METHODOLOGIES

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. An additional methodology used in rating the Lease Revenue Bonds, Series 2012 was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Diane F. Viacava
VP - Senior Credit Officer
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

Mary Cooney
Asst Vice President - 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 assigns A2 rating to Rowan University's (NJ) $60 million Lease Revenue Bonds (Rowan University School of Osteopathic Medicine Project), Series 2013; outlook is revised to stable from negative
No Related Data.
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