New York, January 07, 2016 -- Issue: Revenue Bonds (Red Rocks Community College Project), Series 2016; Underlying Rating: Aa3; Enhanced Rating: Aa2; Sale Amount: $16,965,000; Expected Sale Date: 01/19/2016; Rating Description: Revenue: Public University Broad Pledge
Summary Rating Rationale
Moody's Investors Service has assigned Aa3 underlying and Aa2 enhanced ratings to Colorado Community College System's (CCCS) Series 2016 Revenue Bonds. The Aa3 underlying rating reflects the large scope of the system's operations, demonstrated ability to produce positive cash flow through different economic cycles, and strong liquidity. These characteristics are offset by pressure on enrollment and revenue growth due to an improving economy and participation in an underfunded pension plan.
The Aa2 enhanced rating and stable outlook are based on the structure and mechanics of the Enhancement Program (the Colorado State Intercept Act), which is derived from the State of Colorado's current rating and outlook.
We have also affirmed the Aa3 underlying rating on CCCS' outstanding revenue bonds and Aa2 enhanced ratings for CCCS's outstanding Series 2010A and 2010 B-2 revenue bonds.
The stable outlook on the underlying rating is based on the expectation that enrollment will remain fairly flat during the continued economic recovery, that management will take steps to reduce expenses as warranted to maintain cash flow margins above 7%, and that the system will not issue any debt beyond the current offering.
The stable outlook for the enhanced rating is based on the State of Colorado's current stable outlook.
Factors that Could Lead to an Upgrade
Sustained improvement in operating performance
Improved student market position with consistent net tuition revenue growth
Substantial increase in cash and investments relative to debt and operations
For the enhanced rating, upgrade of the Colorado Higher Education Enhancement Program rating
Factors that Could Lead to a Downgrade
Deterioration in operating cash flow resulting in weakened debt service coverage
Material increase in leverage or reduction of liquidity
Downgrade of Colorado Higher Education Enhancement Program rating
The Series 2016 bonds are on parity with the Series 2010A,B-2,C&D, 2012A, and 2013 bonds, and are secured by net revenues, which include gross revenues less debt service for prior obligations (Series 2003 bonds) and operations and maintenance expenses not paid as part of prior obligations. Net revenues include 10% of tuition revenues, revenues derived from facilities construction fees, special fees (assessed to students with respect to any facility) and any other fee assessed to employees or other persons for use of any facility, all mandatory student and faculty services fees, federal direct payments and any other incomes, and any fees and revenues that the board may determine to include in gross revenues.
There are no debt service reserve funds. The board covenants to impose fees and charges to ensure gross revenues sufficient to pay debt service on all prior obligations, to pay operations and maintenance expenses, and to pay debt service on the Series 2016 and parity obligations.
Use of Proceeds
Proceeds of the Series 2016 Bonds will be used to: construct and equip a new student recreation/fitness facility to be located on the Red Rocks Community College - Lakewood Campus and certain other capital improvements to the system; refund all the Series 2003 bonds; and pay costs of issuance.
The Colorado Community College System is the largest higher education provider in the State of Colorado serving over 151,000 students in fall 2015 and recording over $600 million in operating revenue for FY 2015. The university offers comprehensive educational options towards its goal of educating the regional population. The system consists of 13 colleges throughout the State of Colorado.
The principal methodology used in the underlying rating was Moody's Approach for Evaluating Community Colleges published in December 1999. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings: Pre and Post Default published in July 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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.
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Moody's assigns CO Community College System's Ser 2016 Rev Bds Aa3 underlying & Aa2 enhanced; outlook stable
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007