College will have $64 million of pro-forma rated debt after the current issuance
New York, June 19, 2012 -- Moody's Rating Issue: Revenue Bonds, Merrimack College Issue, Series 2012 A-1; Rating: Baa3; Sale Amount: $60,000,000; Expected Sale Date: 7/18/2012; Rating Description: Revenue: 501c3 Unsecured General Obligation
Issue: Taxable Revenue Bonds, Merrimack College Issue, Series 2012 A-2; Rating: Baa3; Sale Amount: $4,000,000; Expected Sale Date: 7/18/2012; Rating Description: Revenue: 501c3 Unsecured General Obligation
Moody's Investors Service has assigned a Baa3 rating to Merrimack College's ("Merrimack" or college) $64 million of Revenue Bonds, Series 2012 A-1 and A-2, which are expected to be issued by the Massachusetts Development Finance Agency. At this time, we have also affirmed the Baa3 ratings on the outstanding bonds. The rating outlook is stable.
SUMMARY RATING RATIONALE
The Baa3 rating and stable outlook reflect Merrimack's stable market position and consistently positive operating cash flow providing adequate coverage of debt service. These factors are counterbalanced by college's heavy reliance on student charges, thin financial resources relative to debt and operating expenses, and highly competitive student market as highlighted by low freshmen matriculation ratio and past growth of tuition discounting.
*Consistently positive operating performance with FY 2011 operating cash flow margins at 11.3%, resulting in a 1.7 times debt service coverage. The management projects FY 2012 margins to be in line with that in FY 2011.
*Growing enrollment base with diversity of program offerings. The full time equivalent (FTE) enrollment in fall 2011 was 2,292, 18% higher than fall 2007 level.
*Fixed rate debt structure after the issuance of series 2012 A-1 and A-2 bonds. The new debt structure will be entirely fixed rate with no demand debt and no interest rate swap agreements.
*Highly competitive student market evidenced by a low matriculation rate (ratio of number of enrolled freshmen to number of admitted students) of 17.9%.
*Heavy dependence on student charges. The FY 2011 student charges (tuition and auxiliary charges) accounted for 89.5% of operating revenue, according to Moody's calculations. Net tuition per student declined 1.1% in FY 2011 .
*Thin financial resources relative to debt and operations. The FY 2011 expendable financial resources will cover pro-forma debt 0.22 times consisting of series 2012 A-1 and A-2 bonds and operations by 0.24 times.
The stable outlook reflects our expectations that Merrimack's stable market position, consistently positive operating performance and liquidity will not change materially in the near term. The stable outlook also incorporates an expectation of no additional debt (beyond Series 2012) in the next three years and successful resolution of the Perkins loan investigation without a material credit impact on the college.
WHAT COULD MAKE THE RATING GO UP
Substantial increase in financial resources, diversification of the revenue base with considerable growth in philanthropic support, continuation of positive operating performance
WHAT COULD MAKE THE RATING GO DOWN
Deterioration in the student market position, consistently unfavorable operating performance, significant borrowing without commensurate growth in financial resources; resolution of the Perkins loan investigation which has a negative credit impact on the college's liquidity and market position
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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Pranav Sharma Associate Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Diane F. Viacava VP - Senior Credit Officer 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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