NEW YORK--()--Fitch Ratings affirms the 'BBB+' rating on the following series of bonds issued on behalf of University of La Verne (La Verne):
--70.5 million California Municipal Finance Authority, revenue bonds, series 2010A;
--$17.9 million California Educational Facilities Authority, revenue bonds, series 2005A
The Rating Outlook is Stable.
The bonds are a general obligation of the college, payable from legally available funds. Security interest in deeds of trust on certain portions of La Verne's campus and cash funded debt service reserve funds provide additional bondholder protection.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: La Verne's historically positive operating margin, adequate balance sheet resources, and manageable debt burden underpin the 'BBB+' rating. Credit concerns include the university's significant reliance on student-generated revenues, which makes financial performance vulnerable to unanticipated fluctuations in enrollment.
SOUND FINANCIAL PROFILE: Adherence to prudent financial practices, as demonstrated by multi-year financial forecasting and conservative budgeting assumptions, have supported year-over-year generation of operating surpluses and the preservation of an adequate financial cushion. Preliminary data indicates that both operating performance and the level of balance sheet resources remained sound in fiscal 2012.
HIGH REVENUE CONCENTRATION: La Verne continues to be highly dependent upon student-generated revenues to fund operations, which is partially offset by the university's track-record of relatively healthy overall enrollment trends. While unofficial fall 2012 figures indicate that La Verne's College of Law and certain education programs continue to be challenged, the impact from a budgetary standpoint is being managed effectively.
MANAGEABLE DEBT BURDEN: La Verne's debt burden remains moderately high but manageable, as MADS consumed 6.4% of fiscal 2011 operating revenues. The university has no near-term debt financing plans, which should support debt moderation over time. Annual surpluses regularly provide a sound coverage of the university's annual debt service obligations (2.2 times in fiscal 2011).
La Verne's financial profile has remained stable since Fitch's last review. Unaudited results for fiscal 2012 indicate another consecutive year of solidly positive operating performance, in line with the prior year's results (fiscal 2011 operating margin was 7.4%). Financial results were supported by better-than-anticipated student-generated revenues associated with conservative enrollment forecasting, favorable expense variances, and untapped contingency reserves.
The university's ability to maintain balanced operations is highly contingent upon stability in its primary revenue stream - student-generated revenues. These revenues have historically provided 92.8% of annual operating revenues (fiscal 2007-fiscal 2011), underscoring the importance of effective enrollment management. La Verne's total headcount enrollment, which underpins student-generated revenues, remained effectively flat in fall 2011 at 9,556, or -0.1% relative to fall 2010. Stable enrollment trends are viewed favorably by Fitch.
Preliminary fall 2012 data points to further growth in undergraduate headcount, bolstered by enhanced enrollment management strategies and pressures facing the state's public university systems. A second consecutive year of declines in graduate headcount was primarily related to challenges facing the La Verne's College of Law (COL) and the College of Education. The university successfully navigated graduate headcount declines through conservative enrollment forecasting, budgetary adjustments, and growth in other programs.
Importantly, the COL saw its provisional American Bar Association (ABA) accreditation reinstated in March 2012 for a five-year term. According to management, the original loss in provisional ABA accreditation in June 2011 was a major contributing factor to the COL's recent enrollment declines. Fitch will closely monitor enrollment trends in law school and management's response to any operating challenges going forward.
La Verne's available funds, defined by Fitch as cash and investments not permanently restricted, totaled $71.1 million at the end of fiscal 2011, covering a satisfactory 64.2% of operating expenses and 70.2% of total debt. Preliminary fiscal 2012 financial data show a modest improvement in available funds over fiscal 2011 levels.
The university completed the construction of a new residence hall in August 2012 using series 2010 bond proceeds. Fitch favorably notes that the project was finished on time and budget, and that fall 2012 occupancy stood at 98%, which was well ahead of the original estimation of 85%. Near-term capital projects are being funded through remaining series 2010 bond proceeds and operating surpluses, which should allow the university's debt burden to lessen over time.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 12, 2012);
--'U.S. College and University Rating Criteria' (May 25, 2012);
--'Fitch Affirms University of La Verne's (California) Revs at 'BBB+'; Outlook Stable' (Nov. 22, 2011).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria