The Rating Outlook is revised to Negative from Stable.
RFS debt is secured by pledged revenues, which include a broad mix of income, receipts, rentals, fees and pledged tuition from TSU. The RFS bond pledge specifically excludes state operating appropriations.
KEY RATING DRIVERS
Weakening Credit Characteristics: The 'BBB+' rating remains supported by TSU's generally break-even operating results in fiscal years 2012 and 2013, slim but adequate available funds ratios, and state operating and capital support from
Enrollment Pressures Continue: TSU's enrollment dropped 9% in fall 2013, which management attributes to changes in federal PELL eligibility rules, tighter federal student loan underwriting standards, and overly optimistic budget expectations.
High But Manageable Debt Burden: TSU maintains a high debt burden, although Fitch views a long history of state debt service support for about 46% of debt as being a partially mitigating factor.
Enrollment and Operating Performance: TSU's failure to regrow and stabilize enrollment in fall 2014 and return to break-even operations on a full accrual basis in fiscal 2015 will lead to a downgrade.
High Debt Burden: Any increase in debt without parallel growth in operating performance, increased revenues or growth in available funds would trigger a negative rating action due to TSU's high debt burden and projected stressed operations in fiscal 2014 and 2015.
Dependence on Federal Funding Programs: TSU students are highly dependent on federal grants and loans to pay tuition, and therefore changes in program rules and regulations have greater affect on the university than many other institutions.
Established in 1947, TSU is a public four-year university. Located on a single campus approximately three miles from downtown
TSU received a full 10-year accreditation with SACS, effective
Enrollment Pressures Remain
Although TSU's management team stabilized enrollment between fiscal 2010 and 2012, headcount fell by about 9% in fall 2013 (fiscal 2014) to about 8,703. FTE enrollment fell by similar levels. Factors causing TSU enrollment dips have also negatively impacted other HBCU institutions, and include enrollment losses from older, nontraditional undergraduate students due to Pell grant restrictions imposed in 2012, as well as tightened underwriting standards for Parent-Plus loans.
In recent years, the number of TSU's new freshmen applications has grown, but that growth has not translated into matriculating and persisting students. TSU management had predicted stable enrollment for fall 2013, but it fell 9%. Enrollment dipped a much more modest 1% in fall 2012 (fiscal 2013), following a 1% increase in fall 2011. For the fall 2014 enrollment cycle, management reports tightened enrollment and budget assumptions, and enhancing recruitment and admissions activities.
The university's fiscal 2015 budget is targeting fall 2014 enrollment growth of 400 new undergraduate and transfer students, which assumes enrollment growth of roughly 5%. TSU management reports that enrollment is on target as of mid-July, 2014. Fitch considers the university's enrollment volatility a significant credit issue, and will monitor actual enrollment results for fall 2014. Failure to meet or exceed enrollment targets would stress an already tight budget and lead to negative rating actions.
More than 90% of TSU's students are from
Operating Strain for Fiscal 2014
TSU's operating margin is typically close to break-even on a GAAP basis, and was only modestly negative in fiscal 2013. It was balanced on a cash basis before depreciation expense. This contrasts to a positive 2.6% margin in fiscal 2012. Fitch views balanced performance as consistent with expectations for public universities.
The fall 2013 enrollment decline of 9% placed the budget for the fiscal year ending
Fiscal 2015 operations remain uncertain. The university projects a fiscal 2015 deficit of
TSU's revenue diversity is similar to other smaller regional public universities. In fiscal 2013, about 32% of operating revenues came from the state, 37% from a mix of tuition, fees and auxiliary income and 21% from federal grants and contracts (much of which was scholarship and loan related). TSU does not have significant gift, research or endowment income.
Weakened and Slim Balance Sheet Ratios
Available funds, (AF; defined by Fitch as cash and investments less restricted non-expendable and certain expendable net assets), declined to
High Debt Leverage
TSU's financial cushion provides very slim support for the university's high but manageable debt burden. Given operating stress and enrollment volatility, Fitch does not consider TSU to have any additional debt capacity at the current rating.
Outstanding debt is approximately
Maximum annual debt service (MADS) of
Outstanding debt includes a
Additional information is available at 'www.fitchratings.com'.
--'Revenue-Supported Rating Criteria', dated
--'U.S. College and University Rating Criteria', dated
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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