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Rating Action:

Moody's assigns an initial Ba1 to Gardner-Webb University's (NC) 2018 bonds; outlook stable

28 Nov 2018

New York, November 28, 2018 -- Moody's Investors Service has assigned an initial Ba1 to Gardner-Webb University, NC's proposed $24 million Educational Facilities Revenue Bonds (Gardner-Webb University), Series 2018 to be issued by the Public Finance Authority. The bonds are expected to be fixed-rate and amortize over a 13-year period with a final maturity in 2032. The outlook is stable.

RATINGS RATIONALE

Assignment of an initial Ba1 reflects Gardner-Webb University's good financial flexibility with favorable liquidity and a low debt burden relative to financial reserves. At the Ba1, spendable cash and investments provide a relatively solid 1.9x cushion to debt. Monthly liquidity also covers 168 days of operating expenses. These relatively strong levels of liquidity and reserves provide the university with financial flexibility as it works to stabilize enrollment, restore net tuition revenue growth, and balance operations. While Gardner-Webb maintains some market distinction as a private, Christian Baptist university in the broader Charlotte, North Carolina area, recent years of significant enrollment and net tuition revenue declines underscore material competitive pressures and highlight only fair strategic positioning. The university is very highly dependent on net tuition revenue, with modest philanthropic support and only moderate endowment income providing some revenue diversity. Despite solid financial management, operating deficits will likely persist through at least fiscal 2019 as revenue softens further. Favorably, there are no additional debt plans and principal amortization will be regular following the proposed issuance, with debt fully paid down over 13 years.

RATING OUTLOOK

The stable outlook reflects our expectation of preservation of favorable liquidity and a solid cushion of spendable cash and investments relative to debt. The outlook also incorporates some stabilization of the university's market position as it pursues a variety of programmatic investments and enrollment management techniques. Smooth transition of executive leadership following the retirement of the university's long-serving president will be critical to future credit momentum as the university positions itself in an evolving market.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Material strengthening in student demand resulting in sustained revenue growth above 3%

- Significant improvement in operating cash flow margins and debt service coverage

- Sizeable increase in flexible reserves relative to debt and operating expenses

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Failure to stabilize enrollment and restore net tuition revenue growth

- Material contraction in monthly days cash on hand

- Significant deterioration in operating performance

LEGAL SECURITY

The proposed Series 2018 revenue bonds, which represents all pro forma debt, will be secured by university revenue and a mortgage on its College of Health Sciences. The bonds are expected to have a debt service reserve fund amounting to $2.5 million.

The bonds are expected to be subject to a 1.1x debt service coverage covenant to be tested annually. In fiscal 2018, a year in which debt service amounted to $3.8 million, the university recorded 1.2x debt service coverage. Going forward, we expect coverage to strengthen, largely due to a leveling off of pro forma debt service at around $2.3 million annually.

Should the university fail to meet the debt service coverage requirement, it would be required to retain the services of an independent consult to restore compliance. Bondholders would only have to ability to accelerate repayment on the bonds if debt service coverage were to fall below 1.0x during the fiscal year or the university were to fail to comply with the 1.1x coverage requirement for two consecutive years.

Bondholders also benefit from a negative pledge on the university's core campus and revenue.

USE OF PROCEEDS

Proceeds from the proposed 2018 bonds will be used to refinance all of the university's outstanding debt, fund a debt service reserve fund, and pay issuance costs.

PROFILE

Gardner-Webb University is a small, private Christian university with its primary campus situated about 50 miles west of Charlotte. Originally founded in 1905, GWU is a Baptist affiliated university that offers undergraduate, graduate, and doctoral level programming. The university also serves a relatively large cohort of degree completion students. Combined, fall 2018 enrollment amounted to 2,970 full-time equivalent students and fiscal 2018 operating revenue totaled $63 million.

METHODOLOGY

The principal methodology used in this rating was Higher Education published in December 2017. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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.

Christopher Collins
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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