Fitch Affirms Northwest Nazarene University's Revs at 'BBB'; Positive Outlook

Business Wire, June 18, 2009

NEW YORK -- Fitch Ratings affirms the unenhanced 'BBB' rating on approximately $17.8 million of outstanding revenue bonds issued by the Colorado Educational and Cultural Facilities Authority on behalf of Northwest Nazarene University (NNU). The bonds are a general obligation of NNU. The Rating Outlook is Positive.

The 'BBB' rating is supported by NNU's increasing enrollment, positive financial operations, and solid liquidity. In addition to its historically consistent enrollment growth, NNU's successful cost management and revenue raising efforts have contributed to the university's solid debt service coverage. Mitigating credit factors include NNU's small size and dependence on student-generated revenues and contributions, both of which are interconnected functions of the institution's relationship with the Church of the Nazarene (the church). Increased cash and investments, stronger operating cash flows, and manageable capital spending all contributed to the positive financial performance of NNU in fiscal 2008. During the year, the university's cash and investments increased 10.4% to $43.3 million, representing 72.9% of the university's fall 2008 operating expenses (or approximately nine months) and 1.36x coverage of its total outstanding long-term debt.

The Positive Outlook reflects an expectation that NNU's improved operating performance and liquidity, primarily fueled by upward trends in enrollment and gifts, will be maintained, possibly leading to a rating upgrade over the next eighteen month period. Although NNU's fall 2008 matriculation rate rebounded nicely from an unexpected decline in fiscal 2007, management continues to work to avoid any possible attrition issues in fall 2009 due to current economic conditions. Should any significant decline develop that negatively impacts operations and/or liquidity, the prospects for a rating upgrade will be diminished.

NNU's maintenance of liquidity levels is due to the conservative nature of its investment portfolio and the university's fundraising capabilities which have been historically resilient. NNU's portfolio is not exposed to the volatility of non-marketable, or more illiquid, types of asset classes. In addition to its annual fundraising capabilities, NNU benefitted from a large bequest in fiscal 2008, for total gifts and contributions totaling $9.3 million. Excluding contributions from the church, annual giving amounts over the past four fiscal years have ranged from $3.6 million to $6 million. For fiscal 2008, fundraising totaled $12.4 million. While NNU has successfully worked to increase its base of contributors, the church has historically been its largest supporter, although its participation was much smaller in fiscal 2008. Although NNU's operating margin equaled an unusual 17.2% in fiscal 2008 due to the large bequest, the university's historically positive operating performance is more a result of uptrending student generated revenues, its primary revenue source. NNU's positive operations reflect the benefits of enrollment growth, moderate increases in tuition and fees, and its decision to increase its student to faculty ratio (approximately 13:1). Debt ratios continue to be solid. NNU's debt burden is very manageable as MADs of $1.35 million represents 3.4% of fiscal 2008 revenues.

Fall 2008 headcount enrollment was 1,944, up 5% over fall 2007. The number of full time equivalent students increased 4.6% to 1,724 students. The positive trend is the direct result of management's proactive enrollment growth and retention initiatives. Student selectivity declined in fall 2008 to 65.1%, in an effort to offset an unexpected decline in fall 2007 matriculants. The fall 2008 matriculation rate rebounded to 36.9%, providing the largest freshman class in NNU's history.

Founded in 1913, NNU is a denominational, comprehensive university located on an eighty-five acre, park-like campus in the city of Nampa, Idaho, a suburb of Boise. NNU serves the northwest education region of the church which is comprised of eight states, including ID, WA, OR, MT, WY, CO, NV, and UT and enrolls students from throughout the United States and multiple foreign countries.

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