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Fitch Affirms Maryville University of Saint Louis, MO Bonds at 'BBB+'Fitch Ratings has affirmed its 'BBB+' rating on the outstanding $21 million series 2015 Missouri Health and Educational Facilities Authority educational facilities revenue bonds, issued on behalf of Maryville University of Saint Louis (Maryville). The Rating Outlook is Stable. SECURITY The bonds are secured by a mortgage and security interest in Maryville's campus property and its unrestricted receivables (UR). UR includes all unrestricted revenue, tuition and unrestricted gifts and is equivalent to a general obligation of the university. The bonds have a fully funded debt service reserve. KEY RATING DRIVERS STRONG FINANCIAL OPERATIONS: The university continued positive operating margins in fiscal 2016, supported by enrollment growth and expense management. The fiscal 2016 operating margin was solid at 6.7%, and management projects positive results for fiscal 2017. ENROLLMENT AND NET (News - Alert) TUITION REVENUE GROWTH: FTE enrollment increased about 9% to 4,151 in fall 2016 (fiscal 2017), continuing a growth trend from new on-line and graduate programs. Undergraduate enrollment - most of which is full-time - also grew. Net tuition revenue has increased in each of the last six fiscal years. ADEQUATE BALANCE SHEET: Maryville's fiscal 2016 balance sheet ratios remain consistent with those of peer private universities rated by Fitch. Available funds were 68% of expenses and 79% of debt. MODERATELY HIGH DEBT BURDEN: The university's maximum annual debt service (MADS) burden is moderately high but manageable, and is moderating over time. Strong operating results and pro forma MADS coverage, as well as limited additional debt plans, are partially mitigating factors. RATING SENSITIVITIES ENROLLMENT SUPPORTS OPERATIONS: The rating assumes stable to modest enrollment increases at Maryville University of St. Louis, MO that support growth in net tuition revenue and positive operating margins. Revenues remain highly dependent on net student revenue, making the university vulnerable to enrollment shifts. BALANCE SHEET STABLE: Significant reduction of Maryville's balance sheet ratios relative to either debt or expenses could lead to a negative rating action. CREDIT PROFILE Maryville is a non-profit private university affiliated with the Religious of the Sacred Heart. The institution was established in St. Louis in 1872, moved to suburban St. Louis County in 1961, and converted to university status in 1991. The main campus is located about 22 miles from St. Louis, and the university also leases academic space for evening and non-traditional programs. ENROLLMENT DRIVES OPERATIONS FTE enrollment in fall 2016 was 4,151, up more than 8% from fall 2015 and up about 60% since fall 2011. Growth has primarily come from the graduate and non-traditional programs, including on-line and professional offerings. Undergraduate enrollment has been fairly stable, with modest growth over time at around 2,400 FTE students. Maryville is historically a commuter institution, with a mix of full-time and part-time students. Over the last nine years, undergraduate enrollment has become more residential. A new dormitory opened in fall 2016, and management reports that 69% of traditional freshmen live on campus. The college of health professions enrolls the largest proportion of students, about 64% of FTE enrollment. Undergraduate and graduate programs include nursing, occupational therapy, physical therapy, speech and language pathology, and healthcare practice management. Among its online programs, the college includes various business, accounting, cyber security and advanced practice nursing degrees. POSITIVE OPERATING PERFORMANCE Maryville's operations rely heavily on student-generated revenues, typically over 90%, which is similar to other liberal arts colleges. The growing graduate/on-line enrollment component adds both revenue diversity and potential cyclicality. GAAP operating results have been strong in recent years. Operating margins were 6.7% in fiscal 2016, 6.2% in fiscal 2015, and 6.4% in 2014. Similar results are projected for the fiscal year ending May 31, 2017. Net tuition revenue increased in each of the last six years, with another increase projected for fiscal 2017. Revenue growth has been driven largely by graduate and on-line enrollment. Management chose not to increase undergraduate tuition in fiscal 2017 and also simplified its fee structure; recent tuition increases had been in the 2.5%-4.5% range. The university budgets conservatively; budgets include depreciation expense, conservative enrollment assumptions, and various expense contingencies. Maryville has posted sound annual MADS coverage for the last seven years, including 2.5x in fiscal 2016, and 2.0x in fiscal 2015. The university has no additional debt plans at this time, and anticipates funding capital projects from gifts and capital budget allocations. ADEQUATE AVAILABLE FUNDS Available funds (AF), defined by Fitch as cash and investments less permanently restricted net assets, remain consistent with the rating category. The university has funded various capital improvements with gifts and internal revenues in recent years, including fiscal 2016, essentially constraining AF ratios. AF was $52 million in fiscal 2016, down from $59 million in 2015. This calculation includes quasi endowment (about $30.5 million), but not restricted endowment (about $16 million). Fiscal 2016 AF was 68% of expenses and 79% of outstanding debt (about $65 million). These ratios are consistent with peer Fitch-rated private colleges and universities. DEBT BURDEN ABOVE AVERAGE BUT MANAGEABLE MADS is $5.6 million in 2031 due to a double-maturity; this amount will decrease slightly when the series 2006 refunding becomes effective in calendar 2017. Before the 2031 MADS date, however, annual debt service is closer to $4.4 million. MADS burden represented a moderately high 6.8% of fiscal 2016 operating revenues (moderating from 7.5% in fiscal 2015, and 8.3% in fscal 2014 due to significant budget growth). Annual debt service of $4.4 million was more moderate at 4.4%. Fitch considers the university's debt burden to be mitigated in part by strong operating margins and debt service coverage. In 2015 the university refunded its fixed-rate series 2006 bonds in a fixed-rate private placement. The pricing is locked in but does not become effective until 2017, at the time of the series 2006 call date. The private placement is on parity with the series 2015 bonds and management confirms there are no additional bond covenants. BOND SECURITY The series 2015 bonds are on parity with outstanding debt, secured under a Master Trust Indenture. Outstanding debt, including some leases but excluding a forward refunding, is about $65 million. Bond covenants include a 1.lx annual debt service coverage covenant, an additional bonds test of two-year historical net income covering pro forma debt service by 1.2x, and a liquidity covenant of 65%. Additionally, the series 2015 bonds have a debt service reserve. When the forward-refunding of the series 2006 bonds becomes effective in calendar 2017, a liquidity escalation provision required by a bond insurance policy will be eliminated. The escalation would have started in fiscal 2018, building by 5% annually from 65% until 100% is achieved. University bonds are fixed-rate with the exception of a privately placed $13.2 million series 2010 variable-rate bond (about 21% of debt is variable rate). The series 2010 bonds are also issued under the Master Trust Indenture, and have a variable- to fixed rate swap contract through 2022 (no collateral posting is required). The bond's variable index rate is fixed through March 2017, at which time a mandatory index tender is possible. Fitch views Maryville as having sufficient liquidity (AF of $52 million in fiscal 2016) relative to a potential put of about $12.6 million at that time. Additional information is available at www.fitchratings.com Applicable Criteria Revenue-Supported Rating Criteria (pub. 16 Jun 2014) https://www.fitchratings.com/site/re/750012 U.S. College and University Rating Criteria (pub. 12 May 2014) https://www.fitchratings.com/site/re/748013 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016257 Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016257 Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEB SITE AT 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. 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