OREANDA-NEWS. Fitch Ratings has assigned a 'BBB+' rating to the approximately \$20.6 million series 2015 Missouri Health and Educational Facilities Authority educational facilities revenue bonds, issued on behalf of Maryville University of Saint Louis (Maryville).

Bond proceeds will be used to construct and equip a new residence hall, related parking and road improvements, and pay costs of issuance. The bonds will also have a fully funded debt service reserve.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a mortgage and security interest in Maryville's campus property and its unrestricted receivables (UR). Fitch understands that UR includes all unrestricted revenue, tuition and unrestricted gifts, and thus is equivalent to a general obligation of the university.

KEY RATING DRIVERS

STRONG FINANCIAL OPERATIONS: Recent fiscal years have shown positive operating margins, supported by enrollment growth and cost containments, which support the rating. The fiscal 2014 operating margin was 6.4%, and fiscal 2013 was 4.4%. Management projects similar positive operations for fiscal 2015.

ENROLLMENT AND NET TUITION REVENUE GROWTH: FTE enrollment has increased to 3,564 in fall 2014 from 2,380 in fall 2009, an increase of almost 50%. Much of the growth is due to new on-line and graduate programs. Full-time undergraduate enrollment is stable, and is expected to continue its transition from a commuter to a more residential base. Positively, net tuition revenue has increased in each of the last four fiscal years.

ADEQUATE BALANCE SHEET: Maryville's pro-forma balance sheet ratios are consistent with those of peer 'BBB+' private university institutions rated by Fitch. Available funds were 87% relative to fiscal 2014 expenses and 81% relative to pro-forma debt of \$67.4 million.

MODERATELY HIGH DEBT BURDEN: The college's MADS burden is moderately high but manageable. Strong operating results, pro-forma MADS coverage and limited additional debt plans are partially mitigating factors.

RATING SENSITIVITIES

ENROLLMENT SUPPORTS OPERATIONS: The rating assumes stable to modest increases in enrollment, allowing continued growth in net tuition revenue and positive operating margins over time. However, student revenues are highly concentrated, making the university vulnerable to enrollment shifts.

MAINTAIN BALANCE SHEET: Significant reduction of Maryville's balance sheet ratios relative to either debt or expenses could cause a negative rating action.

CREDIT PROFILE

Maryville is a non-profit private university affiliated with the Religious of the Sacred Heart. The institution was established in St. Louis in 1872, moved to suburban St. Louis County in 1961, and converted to university status in 1991. The main campus is located about 22 miles from St. Louis and at the intersection of Highways 40 and 141. The campus is near St. Luke's Hospital and the Maryville Centre Corporate complex. The university also leases academic space for evening and non-traditional programs.

The college is fully accredited by North Central Association of College and Schools. Individual programs have specialized accreditations.

ENROLLMENT DRIVES OPERATIONS

FTE enrollment in fall 2014 was 3,564, up almost 50% from fall 2009. Growth has come from the graduate and non-traditional programs, including on-line offerings. Traditional undergraduate enrollment has been fairly stable over time at around 2,200 FTE students. Maryville is historically a commuter institution, with a mix of full-time and part-time students. Over the last seven years undergraduate enrollment has become more residential (about 33% of full-time undergraduates now reside on campus). On completion of the new dorm facility, a net increase of 190 beds, that percentage is projected to increase.

Enrollment growth has been driven by new undergraduate and graduate programs, as well as on-line graduate and professional offerings. Examples of new programs include cyber security, forensic science, financial services, graduate nursing, sport business management, and speech and language pathology.

The college of health sciences enrolls the largest proportion of students, about 64% of enrollment. Undergraduate and graduate programs include nursing, occupational therapy, physical therapy, a new speech and language pathology program, and healthcare practice management. Among various on-line programs, the college offers an advanced practice nursing program. Other academic focus areas include business, arts and sciences, and education.

POSITIVE OPERATING PERFORMANCE

Maryville's operations are heavily reliant on student-generated revenues, typically about 90%, which is similar to other small liberal arts colleges. GAAP operating results were close to break-even in fiscals 2010 and 2011, but in recent years have been much stronger. Operating margins were 6.4% in fiscal 2014, 4.4% in fiscal 2013, and 5.9% in fiscal 2012. Another positive operating year is projected for the fiscal year ending May 31, 2015.

Net tuition revenue has increased in each of the last four years, with another increase projected for fiscal 2015. Revenue growth has been driven by increases in graduate and on-line enrollment. Additionally, more undergraduate students are living on campus and attending full-time, although some students are expected to continue commuting from the local area.

The university budgets conservatively, which Fitch considers favorably. Budgets include depreciation expense; in addition, management reports that it assumes zero enrollment growth, and includes a substantial \$1.5 million contingency in expenses.

ADEQUATE AVAILABLE FUNDS

Available funds (AF), defined by Fitch as cash and investments less permanently restricted net assets, have increased modestly in recent years, at the same time the university has invested in capital improvements. The university funded a \$9 million university dining center project in fiscal 2012 from internal reserves, and has undertaken other smaller campus renovations. AF was \$54.7 million in fiscal 2014, up from \$53.5 million in fiscal 2013. This calculation includes quasi endowment (about \$32 million), but not restricted endowment (about \$9 million).

AF relative to fiscal 2014 expenses was 87%, and relative to pro-forma debt (about \$67 million) was 81%. Fitch views these ratios as consistent with peer Fitch-rated private colleges and universities.

DEBT BURDEN ABOVE AVERAGE BUT MANAGEABLE

Post issuance debt is about \$67 million, including the series 2015 bonds, but excluding \$4.5 million of bridge loans prepaid in February 2015 from gift proceeds. The series 2015 bonds are fixed rate, as is outstanding debt with the exception of the \$14.2 million series 2010 variable rate bonds. Post issuance variable rate debt will be about 21% of the total. Management is not expecting to issue additional debt at this time.

Pro-forma MADS is \$5.58 million (in 2031), with a relatively flat debt service structure until that time. Fitch also analyzed MADS for a double-maturity in 2031 due to a debt service reserve, which adjustment brings it closer to \$4.5 million. MADS represented moderately high to high 8.3% of fiscal 2014 operating revenues. The adjusted MADS was more moderate at 6.6%. Fitch considers the debt burden consistent with the rating category, and mitigated in part by strong operating margins and pro-forma debt service coverage.

Maryville has posted positive annual debt service coverage for the last five years, including 2.8x in fiscal 2014. Pro-forma MADS (\$5.58 million in 2031) was still 1.8x in fiscal 2014.

MODEST CAPITAL PLANS

Maryville management does not expect to issue additional debt at this time. A \$23 million health science academic building just opened in 2015 and was funded in part from \$13 million of gifts; a \$9.0 million university center renovation was funded internally. A second phase of the planned student housing is expected, but would begin only when demand is sufficient, and then is expected to be from internal cash. The university plans to renovate its athletic facilities, but at this time expects to fund-raise for the majority of the project, which is not expected to start for several years.

BOND SECURITY

The \$20.6 million fixed rate series 2015 bonds will be issued on parity with approximately \$44 million of outstanding bonds, all secured under a Master Trust Indenture. Post issuance debt, including some leases, is about \$67 million. The bonds are secured by a mortgage and security interest in Maryville's campus property and its unrestricted receivables (UR).
Bond covenants include a 1.lx annual debt service coverage covenant, and an additional bonds test of two-year historical net income covering pro-forma debt service by 1.2x. The series 2015 bonds will have a fully funded debt service reserve. There is also a liquidity covenant of 65%.

FUTURE LIQUIDITY ISSUES

The series 2006 bonds have the same liquidity provision, but due to a related to a bond insurance policy it escalates starting in fiscal 2018. The liquidity requirement increases by 5% annually -- from 65% until 100% is achieved. Fitch calculated that Maryville's pro-forma liquidity ratio was above the 100% in fiscal 2014. Management expects to currently refund the 2006 bonds, at which time the liquidity covenant would remain at 65% for outstanding parity debt.

The university's series 2010 bonds are privately placed with a bank, and are also issued under the Master Trust Indenture. They are variable rate with a variable-to-fixed rate swap contract through 2022 (no collateral posting is required). The bond's variable index rate is fixed through March 2017, at which time a mandatory index tender is possible. Fitch views Maryville as having sufficient liquidity (AF of \$54.7 million in fiscal 2014) relative to a potential put of about \$12 million at that time.