|[January 24, 2013]
Fitch Affirms Barry University, FL Revs at 'BBB'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the 'BBB' rating on approximately $70.02 million
of outstanding Pinellas County Educational Facilities Authority, FL
(PCEFA) revenue and refunding bonds, series 2011 and series 2012, issued
on behalf of Barry University (Barry, or the university).
The Rating Outlook is Stable.
Bonds are a general obligation of Barry, further supported by a
cash-funded debt service reserve.
STABLE CREDIT CHARACTERISTICS: Consistently positive operating
performance, adequate balance sheet resources and manageable debt burden
underpin the 'BBB' rating and are counterbalanced by historically
limited revenue diversity, exposure to variable rate debt and its
related risks, and a rising institutional aid requirement.
GROWING FINANCIAL AID NEEDS: Student aid has continued to grow to its
highest level in fiscal 2012, driving the decline in net tuition
revenues, due to softening in undergraduate and non-traditional
ENROLLMENT VARIATIONS: Total headcount enrollment increased slightly in
fall 2012 due to an uptick in graduate enrollments and the number of
transfer and returning students, offsetting a drop in the number of
first time freshmen and the non-traditional headcount.
PRO-ACTIVE MANAGEMENT TEAM: Management continues to mitigate the
financial impact of the increase in student aid through the activation
of certain cost controls built into the budget. Conservative budgetary
practices and cost control strategies are expected to continue providing
necessary financial flexibility.
WHAT COULD TRIGGER A RATING ACTION
DETERIORATING OPERATING MARGIN: Further decline in net tuition revenues,
compounded by higher levels of financial aid, and the university's
inability to make adequate cost adjustments in line with revenue
projections, could negatively stress the rating.
The university generated a positive but narrowing operating margin in
fiscal 2012 largely due to lower than anticipated tuition revenue. The
fiscal 2012 operating margin decreased to 1.5% from 6.7% (restated) and
7.6% in fiscal 2011 and fiscal 2010, respectively. The consolidated
statement of activities was restated for the last two fiscal years to
appropriately portray BarryTel as discontinued operations due to the
sale of the radio and television operation. It is anticipated that
fiscal 2013 financials will reflect the actual close of the television
transaction which occurred in July 2012. Fitch will monitor the
university's narrowing margins in conjunction with increases in
institutional financial aid, given that historically large operating
surpluses have driven growth in the adequate balance sheet resources
which provide some financial flexibility.
Barry experienced an almost $8.4 million shortfall to the net tuition
revenue budget in fiscal 2012. This decline is du in large part to a
decline in undergraduate enrollment which was compounded by higher
levels of financial aid. Management recognizes increasing aid
requirements can negatively impact operations going forward. As a
result, management modified enrollment strategies as it relates to
levels of aid required. Fitch views management's ability to adjust
expenses to offset the shortfall in fiscal 2012 as positive, as
established contingency plans and levers available to deal with
unanticipated revenue shortfalls were effective.
The university's heavy reliance on student generated revenues (91.7% in
fiscal 2012) is not unusual for private colleges, but makes the
university susceptible to changes in enrollment from year to year,
necessitating close monitoring of demand statistics and enrollment
trends. Stable operations provide for adequate 1.9x coverage of the
pro-forma maximum annual debt service (MADS). Pro-forma MADS burden is
manageable at 4%.
Despite relatively flat growth in fiscal 2012, available funds (defined
by Fitch as cash and investments not permanently restricted) have
increased 84% over the past five years to $43.5 million, representing
27.7% of operating expenses and 49.2% of total pro-forma debt in fiscal
2012. The university is anticipating another modest operating surplus in
fiscal 2013 of approximately $1-2 million. While resources are somewhat
low relative to expenses versus other credits rated 'BBB' by Fitch, the
university is in line with the median in this category relative to debt.
The decline in undergraduate headcount enrollment has moderated over the
last year partially attributed to the university's addressing its
ongoing retention issue. Additionally, the university has recently
focused more on the transfer population, targeting local community
colleges in its outreach, and increased transfer admissions by 4% over
the past year. Fitch views the positive momentum as being reflective of
adequate local and regional demand for the university's programs.
Due to a continuous decline in non-traditional enrollment and increased
competition from programs nationwide, the university is increasing
marketing to non-traditional students including on-line programs. Fitch
views the increase in graduate programs positively, having made up for
non-traditional student declines, and will continue to monitor the
university's ability to reposition itself and help turn this trend
Barry was founded by the Dominican Sisters in 1940 as a women's Catholic
college, became co-educational in 1975 and was elevated to university
status in 1981. The university is located on 124 acres in Miami Shores,
FL and offers more than 100 bachelor's, master's and doctoral degrees.
In addition, the university manages a law school on a separate, 15-acre
campus in Orlando, FL, and offers 26 sites and 32 additional points of
delivery throughout the State of Florida, the Bahamas, and the U.S.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 12, 2012);
--'U.S. College and University Rating Criteria' (May 25, 2012);
--'Fitch rates Barry Univeristy's Series 2012 Bonds 'BBB'; Outlook
Stable' (Feb. 8, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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