OREANDA-NEWS. Fitch Ratings has assigned a 'AA-' rating to $60.6 million of Board of Regents of Stephen F. Austin State University, TX revenue financing system revenue refunding and improvement bonds, series 2016.

The bonds are expected to sell via negotiation the week of Sept. 5. Bond proceeds provide funds to finance construction of Stephen F. Austin State University's (SFA) new science, technology, engineering and mathematics (STEM) building and refund $10.4 million of outstanding series 2008 bonds and $13.9 million of series 2009 bonds. The STEM project and the projects funded with the refunded bonds have been approved for state debt service reimbursement.

In addition, Fitch has affirmed the 'AA-' ratings on the following bonds:

--$20.3 million Board of Regents of Stephen F. Austin State University Revenue Financing System revenue refunding bonds, series 2013;

--$58.8 million Texas Public Finance Authority, Stephen F. Austin State University Revenue Financing System revenue bonds, series 2008, series 2009, series 2010, and series 2010A

The Rating Outlook is Stable.

SECURITY

Revenue Financing System (RFS) bonds are secured by all legally available revenues and fund balances of SFA. Security excludes state constitutional appropriation funds and operating appropriations, except those specifically appropriated.

KEY RATING DRIVERS

HISTORY OF POSITIVE MARGINS: SFA has a track-record of positive GAAP-based operating results, including an adjusted 2.4% operating margin in fiscal 2015 (Aug. 31 year-end).

STABLE ENROLLMENT: Enrollment trends have been relatively stable, particularly after SFA tightened its admission standards in fall 2012. SFA expects incremental enrollment growth in the coming years.

HIGH DEBT BURDEN: SFA's debt burden is high, with a pro forma maximum annual debt service (MADS) burden of 9.7%. The high debt burden is mitigated by a history of support from the State of Texas ('AAA'/Outlook Stable), which funds over a quarter of SFA's annual debt service, and by adequate pro forma MADS coverage of 1.3x.

RATING SENSITIVITIES

OPERATING TRENDS: The rating assumes that Stephen F. Austin State University will sustain sound operating margins and balance sheet resources to balance its high debt burden. Material weakening of operating performance could cause rating pressure.

CREDIT PROFILE

SFA is located in Nacogdoches, TX and was established in 1923 as a college for teacher training. Today, the university has six colleges offering more than 80 undergraduate degrees and

40 graduate degrees, as well as doctoral degrees in forestry, educational leadership, and school psychology. SFA has been increasing its focus on STEM fields and was approved in 2014 to offer four-year engineering degrees.

PROFITABLE OPERATING RESULTS

SFA has a track-record of generating positive GAAP-based operating margins. In fiscal 2015, SFA recorded an adjusted 2.4% operating margin, and the margin has averaged approximately 2% over the last four years.

Impressively, SFA maintained positive margins through state appropriation cuts and stagnant enrollment trends in prior years. Proactive university actions included tuition increases, expense management, and deferral of certain capital projects. Fitch believes SFA is positioned to continue to generate positive operating results and sound coverage.

ADEQUATE LIQUIDITY

Positive operating performance has allowed SFA to maintain an adequate balance sheet relative to operations. At fiscal year end (FYE) 2015 (Aug. 31 year end), available funds (AF), defined by Fitch as cash and investments less non-expendable restricted net assets, equaled 50% of operating expenses ('AA' median is 49%) and 60% of pro forma debt ('AA' median is 91%).

STABLE ENROLLMENT

Enrollment trends have been relatively stable since fall 2012, when SFA tightened its admissions standards. Fall 2015 undergraduate enrollment was 10,899. SFA expects incremental enrollment growth in the coming years from its STEM programs, marketing campaign, and junior college partnerships. Freshmen - to-sophomore retention rates have increased, from 63.4% in fall 2012 to 71.0% in fall 2015. SFA is overwhelmingly dependent on in-state students, as approximately 97% of undergraduate students are from Texas, which limits SFA's regional draw and potential to diversify revenue. Texas demographics are favorable, however, and provide a deep applicant pool.

HIGH DEBT BURDEN

SFA's debt burden is high, with a pro forma MADS burden of 9.7% ('AA' median is 4.4%). Pro forma MADS coverage remains an adequate 1.3x ('AA' median is 1.6x). Moreover, the debt load is manageable given SFA's conservative debt structure (all fixed rate debt) and significant state support for debt service. The planned series 2016 debt was anticipated at the time of Fitch's last review in September 2015.

Importantly, 24% of SFA's outstanding RFS bonds are tuition revenue bonds (TRBs), for which the state authorizes debt service reimbursement. The state has historically supported TRB debt service through appropriations each biennium, although it is not legally required to do so. Fitch expects this support to continue. Additionally, 3% of debt is constitutional appropriation bonds, supported from the university's annual general revenue appropriations from the constitutionally endowed State of Texas Higher Education Fund. SFA received a $46.4 million TRB authorization in the state's 2016-2017 biennium budget to reimburse debt service for the series 2016 projects.

Many SFA employees participate in the Teachers Retirement System of Texas (TRS) defined benefit pension plan. (The university also offers a defined contribution plan.) TRS is better funded than the general state employees defined benefit pension system due to slightly more aggressive reforms enacted for TRS in 2013. In August 2016, the state notified SFA that the university's reported share of TRS' pension expense increased by $6.8 million in fiscal 2016. SFA's net pension liability was $18.4 million at FYE 2015, and is estimated at

$39.8 million at year-end 2016.

ONGOING CAPITAL SPENDING

SFA's Campus Master Plan was implemented in fiscal 2012. The most significant near-term project is a new STEM building, funded from series 2016 proceeds. Construction is expected to begin in November 2016. Longer-term, other possible capital projects being considered include renovation of SFA athletic facilities, an upgrade of the Miller Science Building, and a performing arts center.