Fitch Rates New Jersey City University Revs 'A-'

Business Wire, Jan 11, 2005

NEW YORK -- Fitch Ratings assigns an 'A-' rating to the $21.6 million New Jersey Educational Facilities Authority revenue bonds series 2005A, to be sold on behalf of New Jersey City University (NJCU). The Rating Outlook is Stable.

The bonds will be issued as auction-rate securities. The broker dealer is Morgan Stanley & Co., Inc. Bond proceeds will be used to renovate the student union building, construct a pedestrian mall, equip and install a cogeneration plant, acquire and install information technology equipment for the computer network, fund capitalized interest and to pay costs of issuance. The bonds are expected to be sold on or about Jan. 19.

The 'A-' rating is primarily supported by NJCU's stable enrollment, which is expected to grow slightly, the ability to achieve positive operating margins for the past three years after implementing measures to address prior operating deficits, and overall management practices that Fitch views to be strong. Fall 2004 headcount was 8,797. NJCU projects that enrollment will increase by 4.1% over the next 10 years while the growth in the number of high school graduates is expected to be over 15%. The enrollment stability coupled with tuition increases and actions taken by the university to reduce expenses, have led to positive margins for the past three years. Actions taken exemplify the strength of the management team and its integrated plans for financial, facility and enrollment growth.

The primary credit concerns are the projected increase in the university's debt burden, limited liquidity and the financial condition of the state. With the issuance of the series 2005A bonds, maximum annual debt service is expected to be $6.7 million which could represent a use of 6.3% of fiscal 2004 revenues. The debt burden is moderate but expected to double within the next five years if all of the facilities in the capital improvement plan are debt financed. While Fitch views the projected debt burden to be high, it believes that the planning process utilized by the university incorporates reasonable assumptions regarding enrollment, tuition and fee revenue, expected revenues generated by the new facilities and state appropriations. State appropriations represented 41.7% of fiscal 2004 unrestricted revenues. Fitch rates the general obligation debt of the state 'AA-' after a recent downgrade which was primarily due to borrowing by the state for operations for a third straight year. The university is assuming that state appropriations will increase by approximately 3.3% per year for the next 10 years. A significant reduction in funding for NJCU from the state could have a negative impact on the financial operating performance of the university since the university has limited liquidity. Available funds, which Fitch defines as unrestricted and temporarily restricted cash and investments was $24.8 million at the end of fiscal 2004. Available funds would cover 25% of fiscal 2004 expenses. The median coverage for universities rated in the 'A' category by Fitch is 45.9%.