New York, December 05, 2012 -- Moody's Investors Service has affirmed Colgate University's (NY) Aa3 rating, affecting $163.9 million of rated debt outstanding. The Series 2010A and 2012A bonds were issued through the Madison County Capital Resources Corporation. The Series 2003A, 2003B, 2004A, and 2005A bonds were issued by the Madison County Industrial Development Agency. The Series 1996 bonds were issued by the Dormitory Authority of New York State. The outlook is stable.
SUMMARY RATING RATIONALE
The Aa3 rating reflects the university's strong reputation as a highly selective liberal arts university, conservative fiscal and enrollment management practices, financial resources that provide solid support for operations and debt, and consistent fundraising at healthy levels. The rating also considers likely additional debt plans, revenue growth that is expected to be constrained going forward balanced by healthy cash flows, the challenging economic environment, and competition for students amongst top tier institutions.
*Strong national reputation as a highly selective, liberal arts university with an emphasis on undergraduate education and research.
*Healthy financial resources that comfortably support debt at current levels and covers annual operating costs. Total financial resources in FY 2012 were $679.8 million, and expendable financial resources of $358.8 million covered debt by 2.2 times and operations by 2.1 times.
*Prudent fiscal practices and careful management oversight leading to positive operating and healthy cash flow margins.
*Consistent fundraising with relatively strong annual gifts, averaging $28.8 million for the three years ended June 30, 2012, coinciding with conclusion of the university's last comprehensive fundraising campaign.
*Declining demographics in northeast region combined with highly competitive market for students amongst top tier institutions.
*Significant combined reliance on economically sensitive student charges and investment income for revenue, from which 65% and 20% of FY 2012 operating revenues, respectively, are derived.
*Increasing financial aid given the university's commitment to maintain a diverse student body with a strong academic profile, and increased financial aid being offered by competing institutions. As a result, net tuition per student declined 2% from FY 2011 to FY 2012. We expect continued pressure to grow net tuition revenue in the future.
*Future capital spending and debt issuance needed to remain competitive and attractive to prospective and current students. The university has plans to issue additional debt, and while the amount issued could be as much as $50 million, the amount, structure and timing of any issuance has yet to be determined.
The stable outlook reflects our expectation that student demand will remain healthy; the university's conservative budgeting practices, including careful management of enrollment, which will contribute to continued healthy cash flow and positive operations; continued satisfactory financial resource coverage of debt; and healthy fundraising.
WHAT COULD MAKE THE RATING GO UP
Significant increase in financial resources; further improved and sustained operating margins; strengthening of market demand.
WHAT COULD MAKE THE RATING GO DOWN
Sizeable and sustained declines in operating margins; declining trend of student demand and enrollment; continued pressure on net tuition revenue growth; substantial additional borrowing that is not offset by growing financial resources.
PRINCIPAL METHODOLOGY USED
The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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Jenny L. Maloney Vice President - Senior Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Dennis M. Gephardt Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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