Fitch Rates Montclair State University's Series 2008 J Revs 'A'; Outlook Stable

Business Wire, Dec 5, 2008

NEW YORK -- Fitch Ratings assigns an 'A' rating to the approximately $30,000,000 of New Jersey Educational Facilities Authority, revenue bonds (Montclair State University Issue), series 2008 J. The bonds are scheduled to sell via negotiation in late December 2008 or early January 2009. Fitch also affirms the 'A' rating on Montclair State University's (the university's) approximately $340.4 million of outstanding revenue bonds. The series 2008 J bonds, which rank on parity with outstanding revenue bonds, are a general obligation of the university, payable from all legally available funds. The Rating Outlook is Stable.

The 'A' rating primarily reflects the university's stable student demand and steady enrollment growth; consistently positive operations; and pricing flexibility afforded by low tuition rates. Credit concerns include the university's limited, though improving, liquidity; moderately high debt burden, coupled with additional capital needs; and fluctuating state appropriations, which are expected to be further strained over the near term due to current fiscal pressures at the state level (State of New Jersey general obligation debt rated 'AA-' by Fitch).

The Stable Rating Outlook reflects Fitch's expectation that the university will maintain stable demand trends and continue to generate positive operating margins. While the university's consistent operating performance and dramatic improvement in liquidity over the past few years would potentially suggest a rating level higher than 'A', the university expects to debt finance additional capital needs over the near term to account for expected enrollment growth. Prudent implementation of the university's multi-year capital plan while maintaining operations and liquidity at or near current levels may potentially lead to positive rating action.

Full-time equivalent (FTE) enrollment increased 25.5% from fall 2004 to fall 2008. Fall 2008 FTE's were 14,388, up 5.7% from 13,616 in fall 2007. While 93% of students are New Jersey residents, the university is extending its reach across the state, receiving applications from an increasing number of counties. Applications received increased a significant 20% for fall 2008 to 12,012. The university's tuition rates are in the mid to lower range among New Jersey public colleges and universities, providing pricing flexibility. While it maintains a mission of affordability, tuition rates are not capped by the state legislature and are increased by the university as needed to support operations.

The university has maintained consistently positive operations, with an average operating margin of 7.8% over the past five fiscal years; 8.2% in fiscal 2008. Positive operations have been driven in part by enrollment growth and annual tuition increases. Tuition and auxiliary revenues represent the university's largest funding source and accounted for 55.3% of revenues in fiscal 2008. State appropriations represent the second largest funding source and accounted for 27.6% of revenues. Due to the volatile state funding environment in New Jersey, appropriations have accounted for an increasingly lesser percentage of revenues over the past few years. Total appropriations were $79.1 million in fiscal 2008, a 5.0% increase from fiscal 2007. However, general appropriations are expected to decline by approximately 6.5% for fiscal 2009. Fitch believes appropriation risk is partially mitigated by the university's experienced and proactive management team.

While the university's liquidity is limited, available funds increased to $108.1 million in fiscal 2008 from $84.8 million in fiscal 2007. For fiscal 2008, available funds represented a solid 41.1% of operating expenses, but a low 28.1% of pro forma debt, although this is not atypical for public colleges and universities in New Jersey. After issuance of the series 2008 J bonds, pro forma debt will total approximately $385.1 million, with maximum annual debt service (MADS) increasing to approximately $27.1 million. Due to lack of state support for capital projects the university's debt burden remains high, with MADS representing 9.4% of fiscal 2008 unrestricted revenues.

Montclair State University is a four-year public university originally founded in 1908. Proceeds of the series 2008J bonds will be used to finance the construction of a new student housing facility on the university's Montclair, New Jersey campus, fund a capitalized interest fund, and to pay various costs of issuance.

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