OREANDA-NEWS. Fitch Ratings upgrades approximately \$23.8 million of outstanding educational revenue and revenue refunding bonds, series 2004C, issued by the New Jersey Educational Facilities Authority (NJEFA) on behalf of Fairleigh Dickinson University (FDU) to 'BBB+' from 'BBB'.

The Rating Outlook is Stable.


Revenue and revenue refunding bonds are a general obligation of the university, payable from all legally available funds. The bonds are additionally secured by a lien on certain revenues, a mortgage interest in certain campus facilities, and a debt service reserve fund.


IMPROVED BALANCED SHEET: FDU's improved financial cushion drives Fitch's upgrade to 'BBB+'. Available funds (unrestricted cash and investments less permanently restricted net assets) cover an adequate 54.3% of operating expenses and a sound 84.3% of debt (including operating leases), comparing favorably to category peers. Operating surpluses, fundraising, and investment returns have driven balance sheet growth.

STRONG OPERATIONS: The university's long track record of positive operating margins despite periodic enrollment volatility reflects strong management and conservative budgeting practices. FDU has used its consistent operating surpluses to strengthen its financial cushion and to fund capital projects without additional borrowing.

TUITION DEPENDENCE; STABLE DEMAND: The university is highly tuition-dependent, with 93.7% of operating revenues derived from net student charges. Such dependence is typical of private institutions, but FDU's bottom line is nonetheless very sensitive to changes in demand and enrollment. This concentration risk is partially offset by FDU's diversity of program offerings, multiple campuses with distinct draws, and its strong financial flexibility to manage unforeseen enrollment shifts.

MODERATE DEBT BURDEN: FDU's debt burden is moderate due to its use of operating surpluses and fundraising to fund capital needs. Maximum annual debt service (MADS) consumed a manageable 4.2% of fiscal 2014 operating revenues. Coverage of MADS from operations is also strong at 3.3x. FDU has no plans to issue additional debt.


OPERATING STABILITY: FDU's operating performance is sensitive to material shifts in enrollment given its significant tuition dependence. Failure to maintain balanced operations due to potential enrollment volatility could negatively affect the rating.

BALANCE SHEET STRENGTH: Material weakening of FDU's financial cushion relative to expenses or debt is not expected but could negatively pressure the rating.


FDU is a private university founded in 1942. The university operates two primary campuses in New Jersey, each with its own identity and separate mission: the historic and primarily liberal arts-oriented Florham campus in Florham Park and Madison, and the primarily career and graduate-oriented Metropolitan Campus in Teaneck and Hackensack, New Jersey. The university also operates an international campus in Vancouver, British Columbia with over 600 students and Wroxton College in Oxfordshire, England. The university offers over 100 degree programs on the graduate and undergraduate levels. The combined campuses serve over 12,000 students.

FDU's improved financial cushion drives Fitch's upgrade to 'BBB+'. Available funds have grown substantially over the past five years from \$64.3 million at June 30, 2010 to \$108.8 million as of June 30, 2014. Available funds covered an adequate 54.3% of operating expenses and a sound 84.3% of debt (including operating leases) in fiscal 2014, up from 35.8% of expenses and 54.9% of debt (including operating leases) in fiscal 2010. FDU's financial cushion also compares favorably to 'BBB'-category peers. Consistent operating surpluses are the primary driver of growth in financial resources, but fundraising and investment returns have also contributed to balance sheet growth.

The university has a \$64.3 million endowment (as of Dec. 31, 2014), approximately two thirds of which is composed of board-designated accumulated surpluses and investment returns (included in Fitch's calculation of available funds). The endowment is conservatively managed with minimal exposure to alternative investments (STRONG OPERATING PERFORMANCE
The university has a long track record of positive operations, generating surpluses each year since at least fiscal 2003 based on Fitch's records. FDU has generated consistently positive margins averaging a healthy 7.1% over the past five years due to moderate but consistent growth in net tuition revenue and strong management practices; FDU is on track to continue positive operating trends in fiscal 2015. The university's history of surplus operations, despite periodic volatility in enrollment, is viewed favorably by Fitch. FDU's conservative budgeting and strong financial management give the university operating flexibility to absorb unforeseen enrollment shifts or other challenges, such as the temporary lag in fall 2013 admissions related to Hurricane Sandy. Strong surpluses and successful fundraising have historically allowed the university to fund capital needs without the need for substantial borrowing.

The university is highly tuition-dependent, with 93.7% of operating revenues derived from net student charges. High tuition dependence is typical of private institutions, but FDU's revenues are particularly concentrated; very high tuition dependence emphasizes the need to sustain and carefully manage enrollment levels.

Partially offsetting FDU's high reliance on tuition is the relative diversity of the tuition revenues across programs, levels, and locations. FDU has two main campuses in NJ, each focusing on distinct programs and student populations, and a graduate-focused campus in Vancouver. Moderate diversity of program and location, along with regular evaluation of programs to maintain market alignment, increase the likelihood that a decline in one program will be offset by growth in another. In addition, FDU maintains significant operating flexibility to manage the financial effects of moderate enrollment volatility.

Strong demand for graduate programs has offset mild softening of undergraduate demand and is driving sound overall enrollment trends. Graduate FTE increased from 2,536 in fall 2010 to 3,384 in fall 2014 driven largely by engineering, business and pharmacy programs. Further growth is expected as FDU expands into certain health sciences programs. Graduate growth has offset lower undergraduate enrollment.

Undergraduate FTE fell 5.3% to 5,828 in fall 2013, attributed by management to Hurricane Sandy and economic pressures, but appears to have stabilized in fall 2014. Traditional undergraduate yields recovered to fall 2012 levels, and incoming student quality increased incrementally. However, transfer enrollments remain somewhat depressed. Part-time undergraduate students also remain below historical levels. However, this population is largely high school students taking heavily discounted courses for college credit, minimizing the budget impact of their loss. Fitch believes FDU has the budgetary flexibility and program diversity to manage and balance mixed enrollment trends across its academic lines and campuses. However, serious budgetary challenges resulting from enrollment volatility could negatively affect the rating.

FDU's debt is conservatively structured with MADS of \$8.9 million due in fiscal 2015 and level-to-declining annual debt service thereafter. The university's debt burden is moderate with MADS making up a manageable 4.2% of fiscal 2014 operating revenues. Coverage of MADS remained strong at 3.3x in fiscal 2014. FDU has no plans for additional debt but continues to monitor its debt for refinancing opportunities.