Fitch Rates Oklahoma State University BANs & Revs 'AA-'; Outlook Stable
2009-06-19 22:38:04 -
Fitch Ratings has assigned the following ratings to bonds issued by the Board of Regents for the Oklahoma Agricultural and Mechanical Colleges (the issuer) on behalf of Oklahoma State University (OSU or the university).
--$64.4 million general revenue bonds, series 2009A (the bonds) 'AA-';
--$150 million federally taxable bond anticipation notes, series 2009 (the BANs).
The bonds and the BANs are scheduled to sell on or about July 7, 2009 via a negotiated sale. The Rating Outlook is Stable.
The bonds are secured by any and all lawfully available revenues of OSU derived from the newly instituted financing system, excluding revenues appropriated by the legislature from tax receipts and any restricted funds, subject to the payment of OSU's prior encumbered obligations.
Currently, Oklahoma State University, Stillwater Campus and OSU-Tulsa are the only members of the financing system. OSU's prior encumbered obligations (totaling in aggregate approximately $104.95 million as of June 30, 2008) are revenue obligations payable from discrete revenue sources and issued prior to the establishment of the financing system, the authorizing resolutions for which are now closed.
The BANs are secured by the proceeds of the issuer's long-term, fixed-rate general revenue bonds (the permanent financing bonds) expected to be sold no later than Aug. 1, 2011 as additional parity debt to the bonds. The issuer has covenanted to take all steps necessary to provide for the issuance of the permanent financing bonds prior to the issuance of the BANs and to issue permanent financing obligations or interim financing obligations in such amount and at such time, on or prior to Aug. 1, 2011, as shall be necessary to pay in full the BANs when due.
Proceeds of both the bonds and the BANs will be used to finance the acquisition of certain student housing and related facilities (the facilities) located on the university's Stillwater campus. The facilities were originally financed with the proceeds of variable rate demand student housing revenue bonds issued by the Payne County Economic Development Authority, which will be called for redemption in August 2009 with sale proceeds. The current transaction converts this off balance sheet financing into a direct obligation of OSU. The current transactions convert this off-balance sheet financing into a direct obligation of OSU.
The 'AA-' rating reflects Oklahoma State's history of consistent positive operating performance, solid financial cushion, conservative debt profile, strong management team, and significant fundraising capabilities. Primary credit concerns include OSU's established negative trends in enrollment and student demand metrics due in part to low-growth demographics for young adults in the state and the regional nature of the university and its plans to increase debt over the next two years, in addition to the issuance of its permanent financing bonds.
OSU has had positive operations over the past three fiscal years due to management's concerted efforts to build reserves. Its fiscal 2008 operating margin was 1.4%, slightly down from 1.8% in fiscal 2007 primarily due to increases in research and institutional support expenses. Fiscal 2009 operations are expected to exceed fiscal 2008 results as reduced departmental spending has been a focus of the administration. In addition to its consistent and solid state funding (representing 32% of fiscal 2008 operating revenues), OSU benefits from a diverse revenue base, including, tuition (19.1%), auxiliary services (20.9%), and grants and contracts (14.5%).
As is common with most public universities, OSU's liquidity, as reported on its financial statements, is limited. However, OSU also benefits from the fundraising activities of a number of separate component units and state endowments, including the OSU Foundation (the foundation). The conservative nature of OSU's investment portfolio has acted as a buffer against current market volatility. As of March 31, 2009, OSU's total cash and investments increased approximately 7% since fiscal year ended June 30, 2008. As of fiscal 2008, OSU had available funds (unrestricted and temporarily restricted cash and investments) of $157.5 million, representing 18.8% of operating expenses for the period, and 39.4% of proforma long-term debt.
The foundation is a not-for-profit corporation, the sole purpose of which is to provide funds for OSU projects and programs through contributions it receives. In the event of a short-term financial disruption, the foundation would be able to provide financial support to the university. When the available resources of the foundation as of June 30, 2008 ($171.9 million, as adjusted to exclude non-marketable investment) are included with OSU's available funds for the same period available funds, total $329.4 million, representing a solid 39.3% of operating expenses, and 82.3% of proforma long-term debt.
Total proforma debt of $400 million excludes $111.3 million of Oklahoma Capital Improvement Authority lease obligations, which are paid by the state on the university's behalf. Proforma maximum annual debt service (MADS) is estimated to be $21.4 million and would represent a highly manageable 2.5% of fiscal 2008 revenues. It is expected that the planned additional debt will be offset by a corresponding rise in resources available for its repayment.
Enrollment at OSU remains solid despite declines over essentially the past five academic years, attributable in part to the state's low-growth demographics for young adults and a low college attainment level among its populace. OSU's total headcount enrollment decreased 3.6% since fall 2004 to 22,768 students in fall 2008. Over the same period, its total full time equivalents (FTE) declined 4.4% to 18,791. OSU has implemented different strategies to reverse recent trends and strengthen enrollment.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com : cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww .. .
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Fitch RatingsMary Catherine Messner, CFA, FRM 212-908-0738Colin
Walsh, 212-908-0767 (New York)Media Relations:Cindy Stoller,
212-908-0526 (New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
