The fixed rate bonds (the bonds) are expected to price via negotiated sale on or about the week of
In addition, Fitch affirms the 'AA' rating of
The Rating Outlook is Stable.
RFS debt is secured by pledged revenues which include all legally available, unencumbered funds of TSUS.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA' rating primarily reflects TSUS' healthy operating performance, steady enrollment trends, and good financial cushion. Counterbalancing factors include extensive capital plans against the backdrop of a moderately high debt burden and increased competition from out-of-state institutions.
HEALTHY FINANCIAL PROFILE: TSUS has posted consistently solid operating results over the past five years, supported by healthy growth in student-derived revenues and prudent expense management. State operating support (GOs rated 'AAA'/Outlook Stable by Fitch) increased for the 2014-2015 biennium (fiscal 2014 and 2015) following some cutbacks in recent years, which bodes well for operating performance during that time horizon.
STEADY SYSTEM-WIDE ENROLLMENT GROWTH: Total headcount enrollment has grown during each of the past five years, with gains at some campuses offsetting losses at others. Enrollment growth reflect a combination of factors, including enhanced efforts to counter increased competition from out-of-state institutions given vibrant state demographics and projected declines in high school graduates nationwide.
LEVERAGE POSITION REMAINS MANAGEABLE: A moderately high pro forma debt burden is largely mitigated by a conservatively structured debt portfolio and track-record of generating sound coverage from operations. While the system's five-year capital improvement plan (CIP) is sizeable, management's demonstrated ability to prudently monitor and prioritize its capital program, including postponing projects when warranted, is an important offsetting factor. An extendible commercial paper program is presently being developed in support of the CIP.
ADDITIONAL DEBT: The incurrence of significant additional debt without a commensurate increase in financial resources and revenues may negatively pressure the rating.
TSUS, created in 1911, is the oldest university system in
HEALTHY FINANCIAL PROFILE
Fitch views TSUS' ability to generate a solidly positive operating margin in each of the past five fiscal years as a reflection of sound financial management. Despite a pressured state funding environment in the 2012-2013 biennium, TSUS generated a 5.5% and 4.6% margin in fiscal 2012 and 2013, respectively, driven by a mixture of cost containment and revenue growth.
Expenditure growth was constrained through various measures, including attrition and utility cost-savings. On the revenue side, the system benefited from continued enrollment growth coupled with increases in student charges. Importantly, despite a track-record of steady increases in total headcount enrollment, management regularly plans for flat enrollment growth, which effectively creates a contingency reserve to mitigate the impact of adverse budgetary fluctuations. State operating support increased for the 2014-2015 biennium (fiscal 2014 and 2015), which bodes well for operating performance during that time horizon.
The consistent generation of operating surpluses has contributed to growth in the system's financial cushion. Available funds (defined as cash and investments less certain non-expendable net assets) reached
LEVERAGE POSITION REMAINS MANAGEABLE
Based on preliminary numbers, the system's maximum annual debt service (MADS) is expected to rise by a modest
Importantly, approximately one-fifth of the system's pro forma long-term debt is in the form of tuition revenue bonds (TRBs). While TRBs are secured by the RFS pledge, the state has historically provided annual appropriations covering TRB debt service, which continued into the 2014-2015 biennium. While the state is not obligated to appropriate under the TRB program, Fitch positively notes that its track record of doing so has been sound.
Reflecting the size and scope of its expansive operation, the system's projected spending for capital projects spanning fiscal years 2014-2019 is estimated at
Fitch positively notes that management has indicated that it will defer or delay certain capital projects if TRBs are not immediately approved by the state. Moreover, management has historically demonstrated an ability to size RFS debt issuances in line with available and anticipated repayment sources, which has allowed its debt levels to remain sustainable. Fitch does not expect any divergence from this approach going forward.
Additional information is available at 'www.fitchratings.com'.
--'U.S. College and University Rating Criteria', dated
-- 'Fitch Rates Texas
Source: Fitch Ratings
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