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Fitch Affirms Marist College (NY) Revs at 'A'; Outlook StableFitch Ratings affirms its 'A' rating on outstanding bonds issued by the Dutchess County Local Development Corporation (LDC) on behalf of Marist College (Marist, or the college), including the following long-term ratings: --$28.130 million of Dutchess County LDC revenue refunding bonds, series 2012A and series 2013A, at 'A'; --$32.955 million Dutchess County Industrial Development Agency (IDA (News - Alert)) variable-rate demand civic facility revenue bonds, series 2000-A and series 2008-A, at 'A' (underlying). The Rating Outlook is Stable. SECURITY Revenue bonds are an unsecured, general obligation of the college, payable from all legally available funds. KEY RATING DRIVERS STABLE CREDIT CHARACTERISTICS: Marist's consistently, positive operating results, solid balance sheet resources, and manageable debt burden underpin its 'A' rating. Counterbalancing factors include high revenue concentration, a highly competitive operating environment and high exposure to variable-rate debt and its related risks. STRONG DEMAND: Demand continues to be strong, despite slowing enrollment growth in recent years, due to housing shortages which limit the size of the incoming freshmen class. Selectivity at the college continues to be strong, while moderately low matriculation reflects the college's competitive environment. LIMITED REVENUE DIVERSITY: Typical of many private higher education institutions, Marist's dependency on student-generated revenues (89% of total unrestricted operating revenues in fiscal 2014) is considered high. This degree of revenue concentration leaves the college vulnerable to unexpected, unfavorable shifts in student demand. CAPABLE MANAGEMENT: Marist's experienced management team demonstrates prudent financial and facilities planning, resulting in manageable future capital needs. Well-executed enrollment strategies continue to generate sound demand for the college's programs. RATING SENSITIVITIES ONGOING CAPITAL NEEDS: Ongoing capital investment will result in periodic debt issuance and spend-down in financial resources, although Marist's track record of healthy operating results and debt service coverage partially mitigates this concern. VARIABLE-RATE DEBT EXPOSURE: Marist maintains a disproportionately high percentage of variable-rate debt, albeit exposure is declining, with various letters of credit and interest rate hedges exposing it to counter-party risk. CREDIT PROFILE Founded by the Marist Brothers in 1929, Marist is a private four-year liberal arts college located on a 210-acre campus in Poughkeepsie, New York, with a branch campus in Florence, Italy, extension centers throughout New York, and educational offerings offered on-line and study-abroad programs. Fall 2014 headcount and full-time equivalent enrollment totaled 6,356 and 5,592, respectively. STEADY DEMAND Sound student demand trends continue to fuel Marist's strong operating performance. The college received fewer freshmen applications (9,751) for fall 2014, after receiving a record number of applications (11,466) for fall 2012. Marist's selectivity is also slightly weaker than prior years but remains very strong. The college's acceptance rate is still solid at 38.5% for fall 2014 from 31.4% for fall 2012. Matriculation was consistent with prior years, remaining moderately low at 30.5%, indicative of the college's highly competitive operating environment. STRONG OPERATING PERFORMANCE The college's operating margin improved in fiscal 2014 to a strong 12.7%, consistent with prior years. Marist's opeating performance is tempered by its extremely limited revenue diversity, with student-generated revenues, including tuition, fees and auxiliary receipts, providing 89% of the college's operating revenues. However, Fitch believes Marist's ability to annually achieve enrollment targets over the past several enrollment cycles partially mitigates this concern. Marist maintains an industry-standard endowment distribution policy of 5% of the endowment's 12-quarter average market value. However, given its steady operating surpluses, the college limits the use of this policy and does not depend on it for operating support, a factor viewed favorably by Fitch. SOLID BALANCE SHEET RESOURCES Solid balance sheet resources remain a credit strength of the college. Available funds, or cash and investments not permanently restricted, totaled $245.7 million in fiscal 2014, an increase of 17.7% over the prior year. Available funds covered fiscal 2014 operating expenses ($159.9 million) and total pro forma long-term debt (about $187.2 million) by a solid 154% and 131%, respectively. Fitch views favorably the college's solid financial cushion relative to both financial leverage and operating expenditures which is in line with expectations for the 'A' rating category. INCREASED DEBT Total pro forma debt includes revenue bonds, notes payable and lease obligations. Pro forma maximum annual debt service (MADS) on revenue bonds (in 2022) is expected to grow to about $11.36 million with a planned debt issuance in June 2015. MADS coverage based on fiscal 2014 net income available for debt service ($39 million) equals a sound 3.4x, offsetting a moderate, but manageable, MADS burden of 6.2%. Marist's leverage ratios, while increasing, compare favorably to those of other private colleges and universities similarly rated by Fitch. Marist's ongoing capital needs include its north campus redevelopment housing project which it expects to fund with both additional debt and internal resources. The anticipated 789-bed project would consist of both replacing existing facilities and new construction. Deferred maintenance will continue being funded by gifts and annual operating surpluses. Fitch is concerned that Marist's future capital plans could pressure financial resources; however, these concerns are partially offset by Marist's historical healthy operating margins and debt coverage levels. Additionally, Fitch recognizes that the project is essential if Marist is to continue to enhance student demand and grow student generated revenues. HIGHLY EXPOSED TO VARIABLE RATE DEBT About 70.7% of Marist's current debt portfolio is in variable-rate mode. While variable-rate debt represents a disproportionately high share of outstanding debt, the majority of the college's variable-rate demand bonds (VRDBs) are synthetically-fixed through an interest rate swap agreement with Morgan Stanley. Additionally, Marist currently has two one-year term irrevocable direct-pay letters of credit (LOC) with TD Bank on its VRDBs, series 2000-A and 2008-A. Both recently renewed until January 2016 and March 2016. Fitch views the heavy portion of VRDBs as a concern but the proposed bond issuance is expected to be issued in the fixed-rate mode, moderating its exposure to approximately 40%. Additionally, the expectation that Marist will continue to produce healthy margins and maintain strong demand to support growing resources offsets this concern. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --'Revenue-Supported Rating Criteria' (June 2014) --'U.S. College and University Rating Criteria' (May 2014); --'Fitch Rates Marist College (NY) Series 2013 Revs 'A'; Outlook Stable' (March 2013). Applicable Criteria and Related Research: Revenue-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012 U.S. College and University Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980744 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE '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. |
