2009-11-10 21:18:01 -
Fitch Ratings assigns an 'AA-' rating to the approximately $179,680,000 Board of Regents of the University of North Texas System (the system), revenue financing system (RFS) refunding and improvement bonds, series 2009A. The bonds are scheduled to sell during the week of Nov. 16 via negotiation. At the same time, Fitch affirms the 'AA-' rating on the system's approximately $280
million of outstanding RFS bonds, and the short-term 'F1+' rating on the system's commercial paper (CP) program.
The Rating Outlook is Stable.
The series 2009A bonds, which rank on parity with outstanding RFS bonds and CP notes, are secured by pledged revenues which include all legally available revenues, funds, and balances of the system. The pledge excludes state appropriated funds and restricted funds. In addition, certain RFS bonds that are used to finance non self-supported projects are classified as tuition revenue bonds (TRB). Historically, debt service for TRBs paid with tuition revenues has been offset by a corresponding increase in state appropriations. Proceeds of the series 2009A bonds will be used to refinance existing debt, finance expansion of the Dallas campus and construction of a new business leadership building and football stadium, fund capitalized interest, and pay costs of issuance.
The 'AA-' rating reflects the system's stable student demand and steady enrollment growth; long track record of positive operations; and strong state support for both general and capital purposes (State of Texas general obligation debt rated 'AA+' by Fitch). Primary credit concerns include the system's aggressive capital expansion plans; limited fundraising history; and competitive operating environment. The potential financial and operational complexities involved with the system's capital expansion plans, including the transition of the Dallas campus into a stand-alone university within the system and the opening of a new law school, are partially mitigated by the system's experienced management team, careful strategic planning, and strong state and local support. While aggressive, Fitch does not presently expect the expansion plans to erode the system's historic financial strengths, including positive operations and sound liquidity.
Due to favorable demographics in Texas, especially surrounding the Dallas-Fort Worth area, the system benefits from stable student demand trends. Full-time equivalent (FTE) enrollment was 29,158 in fall 2009, up 4% from fall 2008. FTEs increased 13.7% from fall 2005 to fall 2009.
While it faces competition from several public universities in Texas, the system's tuition rates fall in the lower range among the state's large research universities. Furthermore, board designated tuition rates are no longer regulated by state Legislature and may be increased by the system as needed to support operations.
The system has a long track record of positive operations, with an average operating margin of 8.7% over the past five fiscal years; 7.4% in fiscal 2009. Positive operations have been driven in part by enrollment growth and tuition increases. State appropriations and student generated revenues represent the system's two largest funding sources, each accounting for approximately 34% of operating revenues in fiscal 2009. The system received a total of $253.4 million in state appropriations in fiscal 2009, up 6% from fiscal 2008. The system anticipates appropriations to remain flat in fiscal 2010 and does not anticipate any funding reductions in the near term. However, it is taking budgetary measures to offset potential reductions over the intermediate term. Growth in enrollment and research activities is also expected to help offset potential future reductions in state funding.
The system has adequate balance sheet liquidity. Fiscal 2009 available funds of $321.8 million covered operating expenses ($680.2 million) by 47.3% and pro forma debt ($456.1 million) by 70.6%. Available funds increased 27.7% from fiscal years 2005 to 2009. As its capital plans progress, Fitch expects the system's available resources to grow commensurate with the level of debt incurred. After issuance of the series 2009A bonds, maximum annual debt service increases to approximately $39.5 million, and represents a manageable 5.4% of fiscal 2009 operating revenues. Approximately $195 million (43%) of the system's pro forma debt constitutes TRBs.
The short-term 'F1+' rating is based on the system's own internal liquidity, primarily supported by its significant level of highly rated, highly liquid investments. The most liquid of the system's investments are held in the state's money market fund, TexPool. As of Aug. 31, 2009, the system had $209.5 million invested in TexPool. The system has an internal policy which requires it to maintain a minimum TexPool balance equaling 1.2 times (x) the amount of CP notes outstanding. As of Aug.
31, 2009, the system's TexPool funds covered the total authorized CP limit of $100 million by a solid 2.1x. The system currently has only $3.5 million in CP notes outstanding.
The system was established in 1890 and consists of four units; University of North Texas (UNT), UNT Health Science Center, UNT-Dallas, and UNT System Administration. Located in Denton, Texas, UNT is the system's flagship, and with a headcount of over 34,000 students is the fourth largest university in the state and is a recognized emerging research institution.
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Fitch Ratings, New YorkColin Walsh, 212-908-0767Douglas
Kilcommons, 212-908-0740orMedia Relations:Cindy
Stoller, 212-908-0526Email:
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
