Published: June 15, 2010
Fitch Rates Pennsylvania State System of Higher Education's Series AL Revs 'AA'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - Fitch Ratings assigns an 'AA' rating to the following series of bonds
issued by the Pennsylvania Higher Educational Facilities Authority on
behalf of the Pennsylvania State System of Higher Education (PASSHE, or
the system):
--$137.7 million revenue bonds, series AL.
The bonds are expected to sell competitively the week of June 28. Bond
proceeds will be used to finance system capital plan projects ($105.7
million); advance refund the system's series T revenue bonds; fund
capitalized interest; and to pay costs of issuance.
In addition, Fitch affirms the 'AA' rating on PASSHE's $825.3 million of
outstanding revenue bonds.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'AA' rating reflects PASSHE's sound fiscal and operational
management at the central board and individual universities level, as
well as significant financial support from the commonwealth of
Pennsylvania (the commonwealth, GO bonds rated 'AA+' with a Negative
Outlook by Fitch).
--PASSHE's balance sheet resources are satisfactory, and relatively
stable, due to its conservative investment policies and portfolio
composition.
KEY RATING DRIVERS:
--Continued effective management of enrollment, which tends to move
countercyclical with trends in the regional and national economy;
--Restoration of a breakeven operating margin, following a challenging
fiscal 2009 that included a decline in state appropriations and a delay
by the commonwealth in offsetting that with designated federal grant
funds;
--Off-balance-sheet student housing projects of the system's component
universities remaining financially self-supporting.
SECURITY:
Revenue bonds are an unsecured general obligation of the system.
CREDIT SUMMARY:
PASSHE's stability of leadership at the central administrative level and
at individual universities supports sound fiscal and operational
results. The operating margin has historically been breakeven to
slightly positive, although it declined to negative 2% in fiscal 2009.
Fitch notes that had the commonwealth appropriated to PASSHE its
designated fiscal 2009 allocation of federal American Recovery and
Reinvestment Act (ARRA) funds of $27 million, the margin would have been
virtually breakeven. The overdue amount was appropriated in fiscal 2010,
along with a separate allocation specifically for fiscal 2010, and Fitch
anticipates a breakeven to positive margin for the current fiscal year
(ending June 30). Despite that delay, the commonwealth's commitment to
PASSHE remains strong, evidenced by consistent and substantial capital
funding support. During fiscal 2009, the governor announced a doubling
of that support to $130 million annually beginning in fiscal 2010.
Although campus facilities are controlled and operated by the system, or
member universities, a large portion of the capital support is not
reflected in the system's financial statements given that the
commonwealth retains fee title for many campus facilities.
Enrollment growth of approximately 3% during fall 2009, to an estimated
107,077 full-time equivalents (FTE), helped minimize the negative impact
of state funding reductions on the operating margin. The fall 2009 FTE
growth rate was nearly double the average rate over the past five years
of 1.6% and was primarily attributable to the national recession pushing
more students to (or back to) school, and towards more affordable
institutions such as PASSHE universities. As system management
recognizes that PASSHE enrollment levels trend countercyclical to
overall economic conditions, there is no intent to substantially expand
the capacity to meet demand that may not exist during better economic
environments. Instead, capital investments are focused primarily on
improving and replacing existing facilities or services.
Generally stable operating performance has allowed PASSHE to maintain an
adequate liquidity cushion. Available funds of $958 million at the end
of fiscal 2009 covered over half (53.7%) of operating expenses for that
year and 103.1% of total pro forma system debt. Unlike many colleges and
universities, PASSHE's conservatively invested financial cushion
increased during fiscal 2009, despite the global financial market
turbulence.
A manageable credit risk facing PASSHE is the extensive use of
off-balance sheet financing for student housing facilities. The projects
are built by private developers and financed with tax-exempt bonds
issued through separate foundations. While there is no legal recourse to
PASSHE or its universities on those financings, most of the projects are
essential to campus life, and Fitch believes management would act to
ensure their stability if necessary. Management reports that occupancy
at the housing projects remains high and neither PASSHE, nor its
universities, has ever had to provide any direct financial support.
PASSHE includes 14 state-owned universities, four branch campuses,
several regional centers, and the McKeever Environmental Learning
Center, all of which are located throughout the state of Pennsylvania.
The universities were originally founded as teacher training
institutions, and education studies remains an important discipline at
PASSHE schools. PASSHE is now the largest provider of higher education
in the commonwealth. Several of the universities are also members of the
Marine Science Consortium, a separately incorporated 501(c)3 based in
Virginia that conducts research and provides educational programming.
Applicable criteria available on Fitch's web site at www.fitchratings.com
include:
'Revenue-Supported Rating Criteria' (Dec. 29, 2009);
'College and University Rating Criteria' (Dec. 29, 2009).
Additional information is available at www.fitchratings.com.
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 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 Ratings, New York
Eric Kim, +1-212-908-0241
Douglas J.
Kilcommons, +1-212-908-0740
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com
Copyright © 2012, Business Wire, Inc., All rights reserved.
Copyright © 2012, NewsBlaze,
Daily News
Search News
