OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on approximately $3.9 million of Amarillo Junior College District, TX combined fee revenue bonds, series 2011.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by and payable from the gross pledged revenues of Amarillo Junior College District (AC), which consist primarily of up to 25% of tuition charges per student per semester, an out-of-district fee, and a general student fee.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: AC is a community college district serving Amarillo, TX and surrounding counties. The 'AA-' rating reflects its track record of balanced operations, satisfactory financial cushion and a manageable debt burden.

BALANCED OPERATIONS: AC has maintained at least breakeven operating margins on a full-accrual basis over the past five years. Favorable results reflect AC's diverse revenue streams and good financial management in response to continued countercyclical enrollment declines and pressured state funding.

MANAGEABLE DEBT BURDEN: AC has a moderately high debt burden offset by minimal (6% of total) revenue debt, sound institutional coverage from operations and lack of additional debt plans.

RATING SENSITIVITIES

BALANCED OPERATIONS: Amarillo Junior College District management expects enrollment to stabilize near fall 2015 levels, supporting stable financial performance. However, a trend of operating deficits and deteriorating reserve levels would negatively pressure the rating.

CREDIT PROFILE
Established in 1929, AC is a community college with six campuses and an outreach center. The district's tax base is generally coterminous with the City of Amarillo, although its larger service area includes Potter and Randall counties as well as seven other adjacent counties in the Texas Panhandle. In line with its institutional mission, academic coursework includes workforce development, continuing adult education, vocational training, certificate programs, and associates degrees.

BALANCED OPERATIONS; REVENUE DIVERSITY

AC has maintained breakeven or slightly positive operations in each of the past five years despite revenue pressures over that period. The fiscal 2014 margin was 0.1%, and management expects fiscal 2015 results to be similar.

Favorable results reflect AC's diverse revenue streams and good financial management in response to lower enrollment and pressured state funding. Primary fiscal 2014 revenues were net student revenue (23.5%), state appropriations (21.2%), property taxes (23.5%) and grants (30.1%, primarily federal scholarship grants and loans). Regional economic improvement has driven declines in AC's countercyclical enrollment, with FTE losses averaging 3.8% annually since fall 2010 to 5,776 in fall 2014. Enrollment loss pressures net tuition revenue as well as state appropriations, which remain primarily based on contact hours.

However, a healthy and diversified local economy has led to consistent growth (averaging 2.5% per year from fiscal 2010 to $11.2 billion in fiscal 2015) in the district's taxable assessed value (TAV) and generated additional revenue from ad-valorem property taxes. Management has also contained expenses and raised tuition rates in line with state averages to offset revenue pressures.

Fitch expects AC has budgetary flexibility to maintain breakeven results despite continued, though more moderate fall 2015 enrollment declines (preliminary) and a related decline in state appropriations over the 2016-2017 biennium. Failure to offset these losses and maintain balanced operations would negatively pressure the rating.

SATISFACTORY FINANCIAL CUSHION

Balanced operations have supported stable financial resources as well as internal funding of maintenance and capital projects. As of Aug. 31, 2014, available funds (defined by Fitch as cash and investments less non-expendable restricted net assets) totaled $36.4 million, which covered fiscal 2014 operating expenses and long-term debt by a satisfactory 40.6% and 50.6%, respectively.

MANAGEABLE DEBT BURDEN

AC's debt burden is moderately high but manageable. Pro forma maximum annual debt service (MADS) of approximately $6.6 million (includes payments on general obligations as well as revenue bonds) consumed a moderately high 7.3% of fiscal 2014 operating revenues. However, MADS coverage from operations remains sound at 1.3x in fiscal 2014. In addition, the majority (94%) of AC's debt is supported by a dedicated property tax levy on the district's healthy tax base (limited tax GO bonds rated 'AA+'/Outlook Stable).

While Fitch looks primarily at institutional coverage of all obligations, AC's gross pledged revenues of $11.5 million in fiscal 2014 compare unusually well to 2014 revenue bond debt service of $339 thousand. AC has limited capital needs and no additional debt plans (revenue or GO) at this time.