Fitch Rates University of Redlands' $20.5MM Revs 'A'; Outlook Stable

Business Wire, April 1, 2008

NEW YORK -- Fitch Ratings assigns a long-term rating of 'A' to the approximately $20.5 million California Educational Facilities Authority fixed-rate revenue bonds (University of Redlands) series 2008A. The bonds are scheduled to sell via negotiation on or about May 8. At the same time, Fitch assigns a long-term 'A' rating to University of Redlands' (the university) $57.1 million outstanding fixed-rate revenue bonds. The Rating Outlook on all bonds is Stable.

Proceeds of the series 2008A bonds will be used to part finance the construction of a new arts center, theatre expansion, and library renovations, and to pay cost of issuance. The bonds are an unsecured general obligation of the university, payable from all available funds.

The 'A' rating reflects the university's solid enrollment trends, healthy balance sheet liquidity, moderate debt burden, and proven fundraising capabilities. Credit concerns include heavy reliance on student generated revenues, and a competitive operating environment, resulting in low matriculation.

The Stable Outlook is based on Fitch's expectation that the university's enrollment will grow moderately, generating revenues and leading to improved operating performance. In addition, the university recently completed a capital campaign, which raised $106 million. Campaign proceeds are expected to further bolster liquidity and help fund future capital projects.

While the university experienced declines in enrollment in recent years, fall 2007 FTE (full-time equivalent) enrollment increased 3.8% to 3,896, up from 3,755 in fall 2006. The university's acceptance rate was solid in fall 2007 at 62.2%. Applications have steadily increased over the past few years, leading to a decrease in the acceptance rate. While matriculation was low in fall 2007 at 28.7%, it has remained stable over the past four years, averaging 29%.

The university's revenue diversity is limited, with tuition and fee revenues representing 80.2% of total unrestricted revenues in fiscal 2007. The university's operating margin has been variable over the past few years. While a sudden drop in enrollment led to a negative 3.1% operating margin for fiscal 2007, anticipated growth in graduate and non-traditional programs is expected to help stabilize operations going forward. The drop in enrollment was primarily associated with the School of Business, although enrollment in this program has since increased in fiscal 2008. With the issuance of the series 2008A bonds, pro-forma maximum annual debt service (MADS) is expected to occur in fiscal 2009 at approximately $5.8 million. Fiscal 2007 income available for debt service of $9.6 million would cover MADS by 1.7 times (x). The university's pro-forma debt burden is considered moderate, with MADS representing 6.2% of fiscal 2007 unrestricted revenues.

The university has healthy balance sheet liquidity. Fiscal 2007 available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, were $81.2 million, covering total pro-forma debt of $86.3 million by 94.2% and total operating expenses of $95.2 million by 85.4%. The university's liquidity ratios are slightly above average when compared to other private colleges and universities in the 'A' rating category. In addition, the university's recently completed centennial campaign raised $106 million, exceeding its goal of $100 million. The university does not have any additional debt plans in the near term.

University of Redlands is a private independent co-ed liberal arts and sciences university, located on 160 acres in Redlands, California. The university was founded in 1907 by members of the American Baptist Church.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.