The fixed-rate series 2014 bonds are expected to sell via negotiation on or around
The Rating Outlook is Stable.
Limited obligation of LSU, secured by a gross pledge of revenues generated by the university's auxiliary enterprises. The bonds will not be secured by a debt service reserve fund.
KEY RATING DRIVERS
STABLE AUXILIARY OPERATIONS: LSU's position as the flagship institution for higher education and research in the state of
LSU's CREDIT PROFILE: The university's fairly diverse revenue base, adequate balance sheet liquidity, and moderate debt burden provide further credit stability. Counterbalancing factors include a track record of negative operating margins on a full accrual basis and a volatile, albeit stabilizing, state budget environment that resulted in reduced state funding levels over the past few years.
STABILIZING STATE FUNDING: Following several years of significant cuts, state funding was held flat in fiscal 2014 and is expected to increase modestly for fiscal 2015. LSU's seasoned leadership team has prudently managed a lower funding environment through enrollment growth and tuition and fee increases. LSU's affordability relative to its peers continues to provide it additional, though not unlimited, pricing flexibility.
MANAGEABLE DEBT BURDEN: The university maintains a moderate to moderately low pro forma debt burden, and while it issues debt periodically to fund capital needs, its forward capital plans remain reasonable and primarily intended for fully self-supporting auxiliary enterprise facilities. In addition, steady state capital support for academic and research related projects help LSU to maintain manageable financial leverage.
STUDENT DEMAND: Support for auxiliary enterprise-related debt service relies on student demand for LSU. Material enrollment declines, while not expected, could affect LSU's ability to service debt carrying charges on auxiliary revenue bonds.
CREDIT STRENGTH OF LSU: Continued generation of operating deficits on a full accrual basis could negatively affect the auxiliary revenue bond rating over time due to the connection between auxiliary enterprise operations and LSU's overall enrollment and credit profiles.
Founded in 1853 and located in
STABLE AUXILIARY ENTERPRISE OPERATIONS
LSU's auxiliary enterprise revenues continue to generate solid coverage of related debt service. For fiscal 2013, legally pledged revenues, defined as gross auxiliary revenues, totaled
Auxiliary revenues are primarily derived from athletics, housing, parking and transportation, the student union, student health center, and university stores; although athletics and housing made up about 72% of total revenues in fiscal 2013. Fitch views positively management's facilities planning, which includes detailed, multi-year financial projections for debt-financed projects, which are expected to be self-supported, and implementation of various fee increases to offset increased debt service costs.
As a result of the state's historical funding of academic and research buildings, LSU's debt burden created by auxiliary revenue bonds remains manageable. Pro forma MADS represents a moderate 4.2% of the university's fiscal 2013 operating revenues, which is in line with prior years. At this time, LSU's forward capital plans remain manageable and include up to
LSU CREDIT PROFILE
Despite the strength of LSU's pledged auxiliary revenues, the university's overall operating margin on a full accrual basis remains negative, albeit stable. The fiscal 2013 operating margin was negative 3.2%, following a negative 3.5% margin in fiscal 2012. Operating performance has been impacted in recent years by state cuts and higher healthcare and other post-employment benefit costs. General fund appropriations to LSU were cut a total of about
Continued, modest enrollment growth, coupled with tuition and fee increases and management's track record of prudently controlling expenses partially offset the reduced level of state support received by the university. While fiscal 2014 financial information is not yet available, Fitch expects a financial result at least comparable to the fiscal 2013 level based on no further state cuts and continued enrollment and tuition increases. Moreover, state appropriations were increased modestly in the state's enacted 2015 budget.
As expected for a flagship public university, LSU's revenue base is fairly diverse. Student-generated revenues (tuition, fees, and auxiliary revenues) represent the largest funding source; 51% of fiscal 2013 operating revenues. Grants and contracts and state appropriations represented the second and third largest funding sources at 20% and 19%, respectively. Similar to many public colleges and universities, LSU's share of revenues derived from tuition and fees has increased relative to state support. Despite annual tuition and fee increases of about 11% on average over the past five fall enrollment cycles (2009-2013), with a similar increase for fall 2014, LSU's cost of attendance remains low and below that of most peer institutions. In addition, the majority of entering freshmen receive the basic award under the state's TOPS scholarship program, substantially reducing the actual tuition amount paid by the student.
LSU's balance sheet provides an adequate cushion to manage unexpected reductions in revenue and/or increased costs. Available funds, defined by Fitch as cash and investments less nonexpendable (and certain expendable) restricted net assets, totaled
LSU continues to benefit from the support of several legally separate but related foundations. The largest of the foundations are the
The system is in the midst of its reorganization plan, the goal of which is to consolidate the administration and resources of its various units and campuses to capture operational efficiencies, foster collaborative research opportunities, and improve instruction, economic development, healthcare delivery and public service activities. A primary goal of this was to merge the role of LSU chancellor and system president, which took effect in
Additional information is available at 'www.fitchratings.com'.
--'U.S. College and University Rating Criteria' (
--'Fitch Rates Louisiana State University's Ser 2013 Revs 'AA-'; Outlook Stable' (
--'Fitch Rates Louisiana's $496MM GO Bonds 'AA'; Outlook Stable' (
Source: Fitch Ratings
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