[January 24, 2013]

Fitch Affirms Barry University, FL Revs at 'BBB'; Outlook Stable

Fitch Ratings affirms the 'BBB' rating on approximately $70.02 million of outstanding Pinellas County Educational Facilities Authority, FL (PCEFA) revenue and refunding bonds, series 2011 and series 2012, issued on behalf of Barry University (Barry, or the university).

The Rating Outlook is Stable.

SECURITY

Bonds are a general obligation of Barry, further supported by a cash-funded debt service reserve.

SENSITIVITY/RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: Consistently positive operating performance, adequate balance sheet resources and manageable debt burden underpin the 'BBB' rating and are counterbalanced by historically limited revenue diversity, exposure to variable rate debt and its related risks, and a rising institutional aid requirement.

GROWING FINANCIAL AID NEEDS: Student aid has continued to grow to its highest level in fiscal 2012, driving the decline in net tuition revenues, due to softening in undergraduate and non-traditional headcount enrollment.

ENROLLMENT VARIATIONS: Total headcount enrollment increased slightly in fall 2012 due to an uptick in graduate enrollments and the number of transfer and returning students, offsetting a drop in the number of first time freshmen and the non-traditional headcount.

PRO-ACTIVE MANAGEMENT TEAM: Management continues to mitigate the financial impact of the increase in student aid through the activation of certain cost controls built into the budget. Conservative budgetary practices and cost control strategies are expected to continue providing necessary financial flexibility.

WHAT COULD TRIGGER A RATING ACTION

DETERIORATING OPERATING MARGIN: Further decline in net tuition revenues, compounded by higher levels of financial aid, and the university's inability to make adequate cost adjustments in line with revenue projections, could negatively stress the rating.

CREDIT PROFILE

The university generated a positive but narrowing operating margin in fiscal 2012 largely due to lower than anticipated tuition revenue. The fiscal 2012 operating margin decreased to 1.5% from 6.7% (restated) and 7.6% in fiscal 2011 and fiscal 2010, respectively. The consolidated statement of activities was restated for the last two fiscal years to appropriately portray BarryTel as discontinued operations due to the sale of the radio and television operation. It is anticipated that fiscal 2013 financials will reflect the actual close of the television transaction which occurred in July 2012. Fitch will monitor the university's narrowing margins in conjunction with increases in institutional financial aid, given that historically large operating surpluses have driven growth in the adequate balance sheet resources which provide some financial flexibility.

Barry experienced an almost $8.4 million shortfall to the net tuition revenue budget in fiscal 2012. This decline is du in large part to a decline in undergraduate enrollment which was compounded by higher levels of financial aid. Management recognizes increasing aid requirements can negatively impact operations going forward. As a result, management modified enrollment strategies as it relates to levels of aid required. Fitch views management's ability to adjust expenses to offset the shortfall in fiscal 2012 as positive, as established contingency plans and levers available to deal with unanticipated revenue shortfalls were effective.

The university's heavy reliance on student generated revenues (91.7% in fiscal 2012) is not unusual for private colleges, but makes the university susceptible to changes in enrollment from year to year, necessitating close monitoring of demand statistics and enrollment trends. Stable operations provide for adequate 1.9x coverage of the pro-forma maximum annual debt service (MADS). Pro-forma MADS burden is manageable at 4%.

Despite relatively flat growth in fiscal 2012, available funds (defined by Fitch as cash and investments not permanently restricted) have increased 84% over the past five years to $43.5 million, representing 27.7% of operating expenses and 49.2% of total pro-forma debt in fiscal 2012. The university is anticipating another modest operating surplus in fiscal 2013 of approximately $1-2 million. While resources are somewhat low relative to expenses versus other credits rated 'BBB' by Fitch, the university is in line with the median in this category relative to debt.

The decline in undergraduate headcount enrollment has moderated over the last year partially attributed to the university's addressing its ongoing retention issue. Additionally, the university has recently focused more on the transfer population, targeting local community colleges in its outreach, and increased transfer admissions by 4% over the past year. Fitch views the positive momentum as being reflective of adequate local and regional demand for the university's programs.

Due to a continuous decline in non-traditional enrollment and increased competition from programs nationwide, the university is increasing marketing to non-traditional students including on-line programs. Fitch views the increase in graduate programs positively, having made up for non-traditional student declines, and will continue to monitor the university's ability to reposition itself and help turn this trend around.

Barry was founded by the Dominican Sisters in 1940 as a women's Catholic college, became co-educational in 1975 and was elevated to university status in 1981. The university is located on 124 acres in Miami Shores, FL and offers more than 100 bachelor's, master's and doctoral degrees. In addition, the university manages a law school on a separate, 15-acre campus in Orlando, FL, and offers 26 sites and 32 additional points of delivery throughout the State of Florida, the Bahamas, and the U.S. Virgin Islands.

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 rates Barry Univeristy's Series 2012 Bonds 'BBB'; Outlook Stable' (Feb. 8, 2012).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=681015

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=679152

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