The bonds are expected to be sold via negotiation on or about the week of
In addition, Fitch affirms the long-term rating on approximately
The Rating Outlook is Stable.
The bonds are a general obligation of the university.
KEY RATING DRIVERS
ATYPICALLY HIGH LEVERAGE AND DEBT BURDEN: MSU's debt burden and leverage metrics are not in line with the 'AA' rating category. However, Fitch recognizes the need for debt-funded initiatives given the fact that
STEADY OPERATING PERFORMANCE: Over the past five fiscal years, MSU's GAAP-based operating margins have been consistently positive, fueled by enrollment growth, increases in student charges, and prudent expense management. MSU receives state operating appropriations that have been relatively flat in recent years and continue to contribute to a smaller share of the overall budget. MSU's competitive pricing position and the absence of a cap on tuition rates are viewed as credit strengths, although pricing flexibility is somewhat limited by its mission to serve as an affordable educational option to state residents.
HEALTHY STUDENT ENROLLMENT TRENDS: MSU maintains a healthy market position as the second largest postsecondary institution in
EXPERIENCED LEADERSHIP: In general, management has held a long tenure at MSU and significant experience in higher education administration. Management has demonstrated effective financial and budgetary controls, guided by a strategic plan with defined institutional goals that undergo formal periodic reviews. Fitch views favorably management's focus on enhancing MSU's visibility, reputation, and fundraising prowess.
DEBT MANAGEABILITY: Rating stability is predicated on the maintenance of debt service coverage near existing levels. Issuance of additional debt without a commensurate growth in financial resources and revenues would yield negative rating pressure.
MSU is a public research university with its main 252-acre campus divided between the town of
ATYPICALLY HIGH LEVERAGE AND DEBT BURDEN
The series 2014 transaction represents a significant increase in total outstanding debt; however, Fitch notes that meaningful growth in the university's balance sheet resources over the past few years has increased MSU's capacity to absorb the added debt load. Available funds, defined by Fitch as cash and investments less certain restricted net assets, totaled around
Some comfort related to the university's high leverage position is provided by management's demonstrated ability to generate steady funds in support of debt service while undertaking sizeable capital projects. Between fiscal years 2009 and 2013, net investment in property, plant and equipment increased by a sizeable 70.5% while net income available for debt service remained relatively steady, ranging from
Further, while the preliminary pro forma MADS figure represents a high 9.6% of fiscal 2013 unrestricted operating revenues, Fitch notes that a significant portion of the new money portion associated with the series 2014 transaction (approximately 61%) will be allocated toward growth programs at MSU, namely business, science, and communication/media. Fitch believes this strategic decision bodes well for total revenue growth, which, in the absence of debt plans over the next one to three years, should allow the university's debt burden to moderate over time.
A privatized on-campus student housing project that opened in fall 2011 continues to register favorable occupancy results (near 100% in fall 2013). Since the project was financed with debt that is nonrecourse to the university, Fitch does not include the debt associated with the project (approximately
STEADY OPERATING PERFORMANCE
The operating margin for fiscals 2009-2013 has averaged 7.2%, including 4.4% in the most recent fiscal year. Fitch expects the operating margin for public colleges and universities to be break-even on a GAAP basis. MSU's impressive operating performance reflects strong revenue growth despite a flat state funding environment and the management team's financial expertise and consistent monitoring of the budget. Fitch notes state funding remained effectively flat in fiscal 2014; however, enrollment growth coupled with further adjustments in the rate structure, including a 2.4% increase in undergraduate tuition/fees, is contributing to forecasted growth in total revenues.
Given the university's declining, but still significant, reliance on state funding for operations (21.8% of unrestricted operating revenues in fiscal 2013), a significant reduction in state funding for MSU could have a negative effect on the financial strength of the university. Fitch notes, however, that the university maintains a satisfactory level of unencumbered resources to help it manage through short-term financial difficulties (the ratio of available funds-to-operating expenses in fiscal 2013 was 49.4%).
HEALTHY STUDENT ENROLLMENT TRENDS
Fitch considers student demand to be one of the primary determinants of the university's long-term viability. Between fall 2009 and fall 2013, total headcount increased 7.1%, to 19,464 in fall 2013. The increase for fall 2013 was supported by the largest incoming freshmen class in MSU's history and helped the university reach 97.3% of its goal to enroll 20,000 students by 2016.
In general, freshmen and transfer application volume, selectivity, and matriculation rates have remained steady, which is particularly important, since approximately 80% of students are undergraduates. Graduate headcount figures have remained stable over the past five years, and are expected to benefit from new marketing initiatives.
Fitch notes that the university continues to face competition for students, which includes nearby public universities and other institutions; however, MSU's competitive tuition and fee rates remain a key strength for student recruitment. For academic year 2013-14, the university's tuition/fees for in-state undergraduate students were among the lowest relative to other four-year colleges and universities in
Additional information is available at 'www.fitchratings.com'
'U.S. College and University Rating Criteria', dated
'2012 Median Ratios for U.S. Public Colleges and Universities, dated
'Fitch Rates New Jersey's $350MM GO Bonds 'AA-'; Outlook Stable' dated
2012 Median Ratios for U.S. Public Colleges and Universities
Source: Fitch Ratings
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