[March 12, 2014]

Fitch Affirms Roosevelt University (IL) Revs at 'BBB'; Outlook Remains Negative

Fitch Ratings affirms the rating on $226.1 million Illinois Finance Authority revenue bonds issued on behalf of Roosevelt University (Roosevelt) at 'BBB'.

The Rating Outlook is Negative.

SECURITY

The bonds are a general obligation of the university. Additional security provisions include a cash-funded debt service reserve, funded at maximum annual debt service (MADS), and a first lien mortgage on the project.

KEY RATING DRIVERS

DEFICIT DRIVES NEGATIVE OUTLOOK: The Negative Outlook reflects the university's weaker than forecasted negative operating margin for fiscal 2013, driven by expense overages in auxiliary services and under budget tuition fee revenue. Despite three consecutive years of budget reductions, the fiscal 2014 budget is unbalanced.

HIGH TUITION DEPENDENCY: Roosevelt's heavy reliance on student-generated revenues makes financial projections almost wholly contingent on the achievement of performance and enrollment goals. Though the new strategic enrollment plan sets forth goals in that area, Fitch believes that a Negative Outlook remains appropriate until results that would underpin the viability of the financial projections can be demonstrated.

HIGH LEVERAGE PRESSURES BALANCE SHEET: The limited nature of the university's existing financial cushion is a concern, especially relative to its highly leveraged position. MADS burden is a very high 15.5% of fiscal 2013 operating revenues. This concern is partially mitigated by the university's ability to meet MADS coverage and lack of additional debt plans in the near term.

ENGAGED MANAGEMENT TEAM: The university's seasoned and collaborative management team implemented a new round of strategic planning under a five-year institutional strategic plan approved in June 2013. Roosevelt's plan projects long-term enrollment and fiscal growth.

RATING SENSITIVITIES

IMBALANCED OPERATIONS: Inability to meet projections of break-even operations in fiscal 2014 and fiscal 2015, with incremental improvement in fiscal 2016 and beyond, will result in further negative rating action.

ENROLLMENT REMAINS UNCERTAIN: Uncertainties remain around the university's weak demand and enrollment profile. Further softening in this area in fall 2014 could undermine the financial results required to uphold the 'BBB' rating.

CREDIT PROFILE

Founded in 1945, Roosevelt's main campus is located in the historic auditorium building in downtown Chicago, IL. The recently opened Wabash building serves as an academic center and provides additional student housing facilities at the downtown campus. The university also owns and operates a 30-acre suburban campus in Schaumburg, IL, a northwest suburb of Chicago. In fall 2013, Roosevelt enrolled 4,723 full-time equivalent students, compared to 4,760 in fall 2012.

OPERATING DEFICIT POSITION REALIZED

Roosevelt has historically generated narrow operating margins, averaging negative 0.8% over the past five fiscal years. Based on discussions with management and projections provided, Fitch expected Roosevelt to generate a deficit of negative 2% in fiscal 2013 before returning to break-even in fiscal 2014 and demonstrate incremental improvement thereafter. These expectations and the university's somewhat volatile operating performance were factored into the 'BBB' rating. However, fiscal 2013 operating results were weaker than anticipated, as the deficit reached negative 3.1%.

The operating deficit in fiscal 2013 was driven primarily by expense overages in auxiliary services at the Wabash building project, depreciation expense, workforce modernization costs, and below expected enrollment level in fall 2012 resulting in a budgeted shortfall in net tuition and fee revenues. Roosevelt's operating budget is heavily reliant on student generated revenues, which provides for 86.6% of total operating revenues in fiscal 2013.

VIABILITY OF FINANCIAL PROJECTIONS UNPROVEN

Roosevelt approved the fiscal 2014 budget with a $3 million deficit. According to management, revenues to date are higher than budgeted. However, a $1 million revenue reduction for gifts budgeted was taken due to missed fundraising targets. The budget was reduced in the frst quarter to reflect this change. However, another budget revision is expected in the second quarter to reflect better than expected spring 2014 enrollment, which generated a $1.5 million increase in tuition revenues over budget.

A multi-year financial plan including five years of projections (FY2014-FY2019) presented to Fitch reflect gradual operating improvement commencing in fiscal 2016. The university constrained expenses in fiscal 2014, including holding open positions vacant, not restoring the university pension match, and reallocating resources internally where needed. As a result, the university is projecting break-even operating results on a GAAP basis for fiscal 2014. Cash surpluses in fiscal 2015 will likely be slim due to the increased principal payment occurring in that year, according to the university's projections.

Fitch notes that projections to achieve break-even results in fiscal 2014 are contingent upon stabilizing enrollment trends in the near term. Unless Roosevelt can demonstrate it has achieved performance and enrollment goals, as set forth in its new strategic enrollment plan, negative rating action is likely to occur as these results underpin the viability of the financial projections.

STRATEGIC ENROLLMENT PLANNING

During the 2012-2013 academic year, management developed new enrollment initiatives and goals to support its new institutional strategic plan, replacing the former plan adopted in 2003. While Roosevelt's efforts to strengthen demand have been ongoing for several years with varying levels of success, the strategic plans' goals include enhancing the student experience to increase retention, graduation rates and enrollment.

The opening of the Wabash building at the downtown campus in May 2012 has allowed the university to provide greater advising, support and community services to help improve retention, which is currently below average among Roosevelt's self-identified peer group. In addition, the Wabash building provides additional housing (626 beds) to meet occupancy demand and space rental during the summer months.

In December 2012, the Lilian and Larry Goodman Center (a multi-purpose facility) opened providing expansion of the university's intercollegiate athletics program. Furthermore, the pharmacy college, which opened in summer 2011 on the Schaumberg campus, distinguishes the university's offerings by increasing its presence in science, social science, health science and interdisciplinary humanities programs. Overall, the recent campus expansions promote a traditional campus experience with undergraduate program offering and services. These are expected to result in a gradual shift from the part-time, non-traditional population to the full-time, traditional cohort.

EVOLVING DEMAND PROFILE

Total headcount declined 3.1% in fall 2013 to 6,145 students, after 4.2% decline in fall 2012. Overall, the expectations for flat enrollment growth did not materialize in fall 2013 and results represented a loss of 198 students (FT and PT undergraduate and graduate and non-degree). According to management, ongoing problems in the job market have continued to erode demand for part-time programs, particularly in education majors.

The university's inability to achieve the projections presented for fall 2014 enrollment could further impact its financial trajectory. Previously adopted enrollment strategies have yet to show any favorable impact on overall credit quality which supports the decision to maintain the Negative Outlook.

Fitch recognizes that the recently deployed Institutional Strategic Plan and enrollment strategies, which are expected to promote long-term enrollment growth by fall 2018, need time to evolve. The university plans to reach 100% of the enrollment goals presented to Fitch by fall 2018 which appear manageable. Fitch will continue to monitor the university's progress in meeting these goals. An inability to show incremental improvement would likely put downward pressure on the university's credit rating.

LEVERAGE PRESSURES LIMITED BALANCE SHEET

Available funds, defined by Fitch as cash and investments not permanently restricted, totaled $90.8 million in fiscal 2013, up slightly from $88.1 million in fiscal 2012. This represented a narrower 71.6% of operating expenses ($126.7 million) and a largely flat 37.2% of total outstanding long-term debt ($243.7 million) in fiscal 2013, compared to 74.8% and 36.4%, respectively, in fiscal 2012.

Fitch views the modest growth in available funds favorably but continues to view the limited nature of the university's financial cushion as a concern, particularly as compared to the university's sizeable debt burden.

Maximum annual debt service (MADS) totals $19 million, and is due in 2036. Annual obligations will step up to $16 million in 2015 (from the current $14.1 million). In fiscal 2013, net income available for debt service provided 1.1x MADS coverage, compared to 0.8x in fiscal 2012. The improved coverage is viewed favorably and Fitch notes positively that the university has no additional debt plans. Given the expectation of continued slim operations in the near term, the high debt burden (15.5% of fiscal 2013 revenues) will continue to exert pressure on the balance sheet cushion.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria' (May 10, 2013);

--'Fitch Downgrades Roosevelt University (IL) Revs to 'BBB'; 'Outlook Negative' (March 15, 2013).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708049

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=823534

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