Missouri State University -- Moody's assigns A1 to Missouri State University's $34.8 million Series 2012A Auxiliary Revenue Bonds and affirms outstanding ratings; outlook is stable
New York, June 20, 2012 --
Moody's Rating
Issue: Auxiliary Enterprise System Revenue Bonds, Series 2012; Rating: A1; Sale Amount: $34,800,000; Expected Sale Date: 06/29/2012; Rating Description: Revenue: Public University Limited Pledge
Opinion
Moody's has assigned an A1 rating to Missouri State University's ("MSU") $34.8 million Auxiliary Enterprise System Revenue Bonds, Series 2012A. At this time we have also affirmed the A1 rating on MSU's outstanding Auxiliary Enterprise System Bonds and the Aa3 rating on the outstanding Educational Facilities Revenue Bonds. The rating outlook is stable.
SUMMARY RATING RATIONALE: The Aa3 rating reflects MSU's stable market position as a regional public university, strong balance sheet coverage of debt and operations, healthy and improving operating margin, as well as the broader pledge for the Educational Facilities Revenue Bonds. The rating also incorporates the university's declining state support, slower operating revenue growth (per Moody's calculation). The auxiliary enterprise system bonds are rated A1 reflecting the more limited revenue stream supporting debt service.
STRENGTHS:
*Stable market position as a regional public university primarily serving southwest Missouri (Aaa G.O. state rating). Full-time equivalent (FTE) enrollment of 16,298 in fall 2011. Generally flat FTE enrollment over the past five years expected to continue for fall 2012.
*Strong financial resource growth in FY 2011 driven by retained operating surpluses, strong investment returns, and gifts from the ongoing capital campaign. Expendable financial resources were $208.8 million in FY 2011, providing good coverage of pro-forma debt and operations at 1.34 and 0.83 times respectively.
*Consistently healthy operating performance expected to continue, despite pressure on state operating support. The operating cash flow margin grew to 17.7% in FY 2011, providing excellent 4.94 times debt service coverage. Continued favorable operating performance projected for FY 2012, though weaker than FY 2011 due largely to state appropriation cuts.
*Ample monthly liquidity of $142.5 million provides 224 days monthly cash on hand.
CHALLENGES:
*Declining state appropriations have continued in FY 2012. State appropriations declined 5.2% in FY 2011 and a further 7.0% in FY 2012. The governor's last proposal included a 7.78% cut for MSU in FY 2013, but the state legislature approved a flat budget for higher education. The governor will approve or reduce the proposed budget by the end of the month. At this point, the university has budgeted for a 7.78% cut (equal to $6 million) in state operating support.
*Continued need to make strategic and competitive investments within the framework of constrained state funding environment. Future debt plans are being evaluated within the next couple of years for the College of Business Administration (COBA). Plans are preliminary and future debt would be supported by the recently approved $25 per credit hour fee for upper level courses at the COBA.
* More limited security pledge for the Auxiliary System Revenue bonds, and for the Series 2007 bonds, reliance on a single donor's annual contribution to pay nearly half of annual debt service. This donor has consistently made debt service payments on time and has a history of support for the university; however there is currently a pending law suit against the donor's trust.
Outlook
Moody's stable rating outlook is based on our expectation that the university will continue to produce healthy operating performance despite pressure on state operating support and that pledged revenues will continue to provide adequate coverage of debt service responsibilities.
WHAT COULD CHANGE THE RATING UP
Substantial increase in financial resources to provide a stronger cushion for debt and operations; stable enrollment and tuition revenue growth; continued healthy operating margins to offset pressure on state funding
WHAT COULD CHANGE THE RATING DOWN
Significant additional debt without commensurate growth in financial resources; for the Auxiliary Enterprise System Revenue bonds, a decrease in donor support for Series 2007A debt service payments or a decline in the university's support for the auxiliary system; pressure on student enrollment, tuition revenue or auxiliary enterprise revenue that weakens cash flow and debt service coverage; decreased state operating appropriations or pressure on the state's credit profile
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.
REGULATORY DISCLOSURES
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Emily Schwarz Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Kimberly S. Tuby Vice President - Senior Analyst Public Finance Group 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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