Fitch Rates Pennsylvania State System of Higher Ed $31.15MM Refunding Rev Bonds 'AA-'
2008-07-23 03:49:07 -
- Fitch Ratings assigns an 'AA-' rating to approximately $31.15 million of Pennsylvania Higher Educational Facilities Authority refunding revenue bonds series AI, issued on behalf of the Pennsylvania State System of Higher Education (the system). The series AI bonds are expected to sell competitively on or about July 29. The bonds are an unsecured general obligation of the system and will be issued on parity with the system's outstanding revenue bonds. Proceeds of the series AI bonds will be used to refund all of the system's outstanding variable rate bonds (2002 series V, 2003 series Y, 2004 series AB and 2005 series AD) and pay costs of issuance. The Rating Outlook is Stable.
The 'AA-' rating reflects the system's increasing enrollment, positive operations and moderate liquidity. Fall 2007 headcount enrollment was 110,428 and has increased approximately 6% since fall 2003. The stability of enrollment has contributed to the system's operations, which have been positive in four of the past five years. The system's operating margin increased slightly to 1.8% in fiscal 2007 from 1.5% in fiscal 2006. Although state appropriations for operating expenses grew over the period 2004 to 2007; these revenues as a percent of the system's total revenues incrementally declined, reflecting a diversification of the system's revenue base. The system's liquidity serves as a buffer during years of reduced state appropriations. Available funds, as measured by unrestricted and temporarily restricted cash and investments, totaled approximately $935 million for fiscal 2007, providing approximately 58%, or seven months, of the year's operating expenses.
The primary credit concerns are the off-balance sheet debt burden of the system's component units and the limited financial flexibility associated with the system's collective bargaining contracts with its employees. Although Fitch considers the system's direct debt burden manageable, Fitch views its extensive use of off balance sheet financing for student housing at various campuses as adding to the system's overall financial leverage. The separate component units of the system have increased debt significantly since fiscal 2002, from $41.1 million to $610 million in fiscal 2007. Although the component unit debt is non-recourse to the system, it has relied upon this type of financing in order to construct needed student housing. As such, Fitch believes the system may have an interest in the financial viability of the facilities. The system reports that the housing facilities have average occupancy rates of greater than 95% and are financially sound.
The system includes 14 universities located throughout the state of Pennsylvania, four branch campuses, several regional centers, and the McKeever Environmental Learning Center.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, New York
Mary Catherine Messner, CFA, FRM, 212-908-0738
Douglas J. Kilcommons, 212-908-0740
Sandro Scenga, 212-908-0278 (Media Relations)
