OREANDA-NEWS. Fitch Ratings assigns an 'A-' rating to the approximately \$92.2 million of state of Oregon, Oregon Facilities Authority revenue bonds (University of Portland Projects), 2015 series A (tax-exempt) and series B (federally taxable), issued on behalf of the University of Portland (the university or UP).

The bonds are expected to price via negotiation the week of April 13, 2015. Proceeds will be used to finance construction of a new 250-bed residence hall totaling about \$25 million and refinance and restructure UP's series 2007A outstanding revenue bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a lien on unrestricted gross revenues of the university.

KEY RATING DRIVERS

STABLE ENROLLMENT: UP is a mission-driven university offering broad-based programs, with a regional but expanding student draw. UP's biggest challenge is converting the recent surge in applications to matriculated students. Retention is strong at 90%.

STRONG OPERATING PERFORMANCE: Multi-year operating surpluses are achieved despite a very high institutional aid requirement. UP is highly reliant on student-generated revenues and, therefore, will need to carefully balance its mission and the discounting rate to continue to achieve growth in net tuition revenues. Off-campus programs provide some tuition diversity.

SOUND BALANCE SHEET: The rating is stable at 'A-' largely due to the university's sound balance sheet resources, which Fitch believes is sufficient to support debt levels.

RATING SENSITIVITIES

OPERATING MARGIN: Sustained margin improvement is expected. Inability to achieve close to current level surpluses and debt service coverage achieved in fiscal 2014 could lead to negative rating action.

ENROLLMENT: Rating stability depends on maintaining healthy enrollment levels and achieving planned growth which are closely tied to the operating performance. Inability to grow net tuition revenues could negatively impact the rating.

ADDITIONAL DEBT: Any issuance of additional debt must be accompanied by growth in balance sheet resources to maintain the current rating.

CREDIT PROFILE

The university is a small, mission-driven private, nonprofit Roman Catholic institution located on a 150-acre campus near downtown Portland, founded in 1901 by the Congregation of Holy Cross. Since 1967, the university has been governed by an independent Board of Regents, with Holy Cross priests and brothers as members of its board, administration, faculty and staff, including the newly appointed president in July 2014.

The university is a liberal arts and sciences institution with 15 undergraduate departments, four professional schools (in business, education, engineering, and nursing) and a graduate school offering master's and doctoral degrees in various disciplines. Additionally, off-campus programs are offered at the university's leased centers in Guam, Austria, Australia, England, Spain, Italy and Ireland. Headcount enrollment has grown 10.8% since fall 2010 to 4,169 in fall 2014.

The college is regionally accredited by the Northwestern Commission of Colleges and Universities, and the only institution in the state to be nationally accredited in business, education, engineering and nursing.

LIMITED DEMAND FLEXIBILITY

UP's total headcount enrollment continues to improve to 4,169 in fall 2014 (with 3.3% growth over the prior year) which supports UP's growing regional reputation, despite the gradual decline in graduate enrollment over the past five years to 489 students.

UP has seen healthy growth in freshmen applications over a five-year period to 11,099 in fall 2014 reflecting successful target marketing strategies, although competition from lower-priced public schools and other small private schools remains strong. The university's improved but still low selectivity and very low matriculation rate (15%), despite the growing applicant pool, provide UP with limited flexibility should demand falter. Positively, retention for first-year full-time freshmen is strong at 90%.

Fitch notes that a challenge for UP is converting accepted students to matriculated students; however, weak matriculation is largely offset by UP's ability to generate stable operations at this level.

STRONG OPERATING PERFORMANCE

The university's financial performance has been consistently strong despite pressured demand. The university has maintained operating surpluses, averaging 4.6% between fiscal 2012 and fiscal 2014, as adjusted by Fitch. UP's operating margin improved to solid 7.7% in fiscal 2014.

Net tuition revenue has increased steadily over each of the past five years, which Fitch views favorably, despite a high but steady discount rate. Management has been successful in managing the expense base in order to generate positive margins.

Based on the fiscal 2015 budget and forecast provided (as of Dec. 31, 2014), Fitch expects fiscal 2015 results to be stronger than fiscal 2014. The proposed 'A-' rating is predicated on margin sustainability reflecting multiple-year surpluses and strong coverage levels.

BALANCE SHEET SUPPORTS RATING

The university's financial flexibility is viewed as a credit strength, with unrestricted available funds (defined by Fitch as cash and investments less permanently restricted net assets) representing 92.6% and 104.1% of operating expenditures and pro forma long-term debt, respectively.

Alternative investments total 86% of total investments or \$138.8 million, consisting entirely of endowment assets invested on behalf of the university by religious affiliate, the University of Notre Dame (UND).

UND has agreed to manage UP's endowment portfolio at no cost to the university. UP's investment assets managed by UND remain UP's assets. UND is subject to its own financial audit on an annual basis and the University of Portland has engaged an independent auditor, other than the auditor of its own financial statements, to perform additional tests on UP's UND-managed investments to provide additional assurance with respect to valuation and controls.

The university's investment relationship with UND allows UP the benefit of UND's endowment management expertise and access to investment options that would not ordinarily be available to an endowment of UP's size.

UP may redeem its interest in the investments with UND, as necessary. Whenever a redemption request is made, UND is required to distribute the funds within 30 days if the redemption value does not exceed \$10 million, within 90 days if the redemption value is between \$10 million and \$50 million, and within 180 days if the redemption values exceed \$50 million.

Favorably, approximately \$50 million or 36% of UP's endowment assets held with UND is available within 90 days, giving Fitch additional comfort. Furthermore, adjusted available funds, as calculated by Fitch, is \$27.7 million which covers maximum annual debt service (MADS) by 4.85x. Combined, coverage of MADS increases to 13.6x within 90 days.