Fitch Rates Pomona College's $58.8MM Revs 'AAA'; Outlook Stable

Business Wire, May 19, 2008

NEW YORK -- Fitch Ratings assigns a long-term 'AAA' rating to the approximately $58.8 million California Educational Facilities Authority fixed rate revenue bonds (Pomona College) series 2008A. The bonds are scheduled to sell via negotiation on or about June 5. At the same time, Fitch assigns a long-term 'AAA' rating to Pomona College's (Pomona or the college) $66.5 million of outstanding fixed rate revenue bonds. The Rating Outlook on all bonds is Stable.

The college expects to issue an additional approximately $34.7 million of series 2008B variable rate demand bonds shortly after the issuance of the series 2008A bonds (collectively, the 2008 bonds). Fitch expects to assign a long- and short-term rating to the series 2008B bonds nearer to closing. The short-term rating is expected to be based upon a liquidity facility to be provided by Bank of America, N.A.

Proceeds of the 2008 bonds will be used to finance the construction of two new residence halls, new parking facilities, a new athletic facility, and a new entrance road, and to pay various costs of issuance. Pomona's revenue bonds are an unsecured general obligation of the college, payable from all legally available funds.

The long-term 'AAA' rating reflects Pomona's reputation as one of the top private liberal arts colleges in the U.S., demonstrated by strong student demand and high selectivity; strong balance sheet liquidity; and proven fundraising capabilities. While credit risks are minimal, Pomona depends heavily upon investment income generated through annual spending of a portion of the total return generated by its pooled investment fund. However, this is not atypical for private colleges and universities with similar size investment portfolios. A material deterioration in Pomona's pooled investment fund, which contains its $1.8 billion endowment, is unlikely given the sophistication of its asset management strategy and management's diligence in monitoring overall portfolio performance.

Pomona's headcount enrollment totaled 1,520 in fall 2007. While applications have steadily increased over the past five years, the college has maintained enrollment at or near the current level each year. Pomona's acceptance rate also remains very strong (16.2% in fall 2007), reflecting its highly selective admissions criteria. The matriculation rate is healthy (39% in fall 2007), and has remained consistent over the past five years. Pomona also benefits from a diverse student population, with only 32% of students coming from in-state.

Pomona's impressive balance sheet liquidity and minimal financial leverage further support the rating. Fiscal 2007 available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, were $1.7 billion, providing more than sufficient coverage of total operating expenses ($107.9 million) and total pro forma debt ($187.7 million).

The college's revenue base is fairly diverse. The largest revenue source, tuition, fees, room and board, represented 41.4% of total unrestricted revenues in fiscal 2007, with investment income and gains representing the majority of remaining revenues. The college's operating margin (inclusive of endowment spending) has been positive over the past five years, though declined to 1.5% in fiscal 2007 from 7.5% in fiscal 2006. The strength of Pomona's balance sheet more than offsets the recent decline in operations. Fitch expects the college's operating margin to show modest improvement in fiscal 2008.

With the issuance of the 2008 bonds, maximum annual debt service (MADS) is expected to occur in fiscal 2013 at approximately $8.4 million (excluding bullet maturity payments). Fiscal 2007 income available for debt service of $13.9 million would cover MADS by a solid 1.7 times (x). The college's pro forma debt burden is moderately high, though manageable, with MADS representing 7.7% of fiscal 2007 unrestricted revenues. After the issuance of the 2008 bonds, the college does not intend to issue additional debt in the near to intermediate term. Future capital plans are expected to be supported primarily by fundraising.

Founded in 1887, Pomona College is a private, independent co-ed liberal arts college, located on 140 acres in Claremont, CA.

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