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Rating Action:

Moody's confirms Albright College, PA's Ba1 rating; outlook negative

05 Feb 2014

$13.1M of rated debt

New York, February 05, 2014 -- Moody's has confirmed its Ba1 rating on Albright College's Series 2004 Revenue bonds issued by Berks County Municipal Authority. This concludes our review for downgrade. The outlook is negative. The rating and outlook incorporate Albright's recent successful remarketing of the Series 2008 bonds, reducing near term liquidity risk, pressured student market and uncertainty regarding a new pricing strategy, and satisfactory debt service coverage.

SUMMARY RATING RATIONALE

The Ba1 rating is based on Albright's challenged student demand, with some initial success for FY 2014 from a significant change in pricing strategy, continued satisfactory debt service coverage, and modest levels of liquidity. Confirmation of the Ba1 rating also reflects the recent remarketing of the $25.5 million Series 2008 bonds with private placement bonds held by Santander Bank, N.A. (Baa1/P-2), which eliminates the near-term risk of a potential failed remarketing.

The negative outlook captures uncertainty regarding the reputational and financial impact of the college's newly implemented financial aid strategy, combined with tightening of operating performance.

CHALLENGES:

*Albright operates in a highly competitive student market with many public and private colleges and universities in Pennsylvania, as evidenced by a low yield on admitted students of 17% for fall 2013.

*Operating revenue declined by $3.6 million, or 6.5%, in FY 2013, due to a significantly lower than expected entering class in fall 2012. This revenue decline resulted in breakeven operating performance (down from 3.2% in FY 2012). Management projects slightly stronger operating performance in FY 2014.

*The ultimate impact of a new financial aid strategy, in which the college guarantees full institutionally-determined financial need (so far, approved for fall 2013 and fall 2014), is uncertain and the college faces continued potential enrollment and net tuition volatility as the plan is implemented over the next several years.

*Monthly liquidity of just over $13 million as of FYE 2013 provided a moderate 104 days cash on hand. Unlike wealthier institutions which meet full financial need, Albright has more limited financial resources to support its new financial aid strategy.

*Very high reliance on student charges, which represented 87% of total operating revenue in FY 2013, heightens the need for Albright to meet its enrollment targets.

*Counterparty risk has increased since the college now essentially relies on one key banking partner, Santander Bank (though 25% participation with Vist Bank), for both its long-term debt strategy and its operating lines.

STRENGTHS:

*Cash flow provided satisfactory coverage of debt at 2.0 times in FY 2013 and management demonstrated its willingness and ability to cut expenses in order to balance the budget. Debt service coverage should improve moderately in FY2014 based on year to date projections.

*Albright's new financial aid strategy resulted in application growth and a 5.3% increase in full-time equivalent enrollment for fall 2013. Management expects net tuition revenue growth of approximately $2 million for FY 2014, following a $1.2 million decline last year.

*Continued investment in plant, with 2.0 times capital spending ratio in FY 2012 and FY 2013, is expected to help attract students. Future capital projects will be gift funded.

*Successful remarketing of the Series 2008 bonds and replacement with private placement bonds reduces near-term remarketing risk, though there is a tender feature in October 2018 and the college will need to continue to meet various covenants to avoid acceleration of debt.

Outlook

The negative outlook reflects our expectation that Albright may be challenged to stabilize its net tuition revenue in the mid-term given the change in its financial aid program, and that a failure to meet enrollment targets and grow tuition could result in cash flow pressure and a draw on financial resources.

WHAT COULD MAKE THE RATING GO DOWN

A downgrade could result from deterioration of operating performance, volatility in enrollment and net tuition revenue, or reduction in financial reserves.

WHAT COULD MAKE THE RATING GO UP

Stabilized enrollment and demonstrated ability to manage and grow net tuition revenue with the new financial aid strategy, combined with ongoing healthy debt service coverage, would result in positive rating pressure.

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.

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.

Emily Schwarz
Asst Vice President - 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

Susan I Fitzgerald
Senior Vice President
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 confirms Albright College, PA's Ba1 rating; outlook negative
No Related Data.
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