Fitch Rates Univ. of North Texas System Revs at 'AA' and Extendible CP at 'F1+'; Outlook Stable

Harry · December 16, 2016

December 13, 2016 03:50 PM Eastern Standard Time

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings with respect to bonds and notes issued by the Board of Regents of the University of North Texas System (UNTS):

--$214.9 million revenue financing system (RFS) refunding and improvement bonds, series 2017A 'AA';

--$165.0 million RFS refunding and improvement bonds, taxable series 2017B 'AA';

--75.0 million RFS Commercial Paper Notes, Series B, consisting of a tax-exempt subseries and a taxable sub-series (extendible commercial paper program) 'F1+'.

The bonds are expected to sell via negotiation the week of January 2. Proceeds will fund certain capital improvements, refund certain outstanding RFS bonds, refund a portion of the outstanding series A commercial paper (CP) notes, and pay costs of issuance. CP programs will provide interim funding for capital projects.

In addition, Fitch has affirmed the following ratings on debt issued by UNTS:

--$438.0 million RFS bonds at 'AA';

--$75.0 million RFS Commercial Paper Notes, Series A (traditional commercial paper program) at 'F1+'.

The Rating Outlook is Stable.

SECURITY

RFS bonds are secured by all legally available revenues, funds, and balances of the system. Pledged revenues exclude state appropriations and other restricted funds. RFS commercial paper (CP) and extendible commercial paper (ECP) notes are on parity.

KEY RATING DRIVERS

STRONG DEMAND AND ENROLLMENT: UNTS maintains healthy demand and enrollment trends, reflecting its good market position in the growing Dallas-Fort Worth area and greater North Texas region. The system's activities are somewhat diversified, with different missions and offerings at its three component institutions.

SOUND FINANCIAL PROFILE: UNTS' operations have improved over the past three fiscal years, and margins are now solidly positive. Balance sheet resources are somewhat low for the rating level but adequate in light of the system's strong operating profile and significant support from the State of Texas ('AAA'/Stable Outlook).

GROWING BUT MANAGEABLE DEBT: UNTS's debt load has grown with large capital investments but remains manageable. Over 45% of the system's pro forma debt is state-supported by tuition revenue bond (TRB) appropriations.

COMMERCIAL PAPER PROGRAMS: The series A CP program's 'F1+' rating is based on UNTS' sound financial profile and ability to cover the program's maximum potential liquidity needs by at least 1.25x from internal sources. The series B ECP program is rated 'F1+' based on UNTS' sound financial profile and market access, which Fitch assesses from the system's overall creditworthiness. The Short-Term 'F1+' rating corresponds to the Long-Term 'AA' rating on the system's outstanding revenue bonds.

RATING SENSITIVITIES

STATE SUPPORT: Fitch believes UNTS has the resources and financial flexibility to manage through periodic fluctuations in state funding. However, a significant reduction in states support could pressure operations.

BALANCE SHEET RESOURCES: Material weakening of UNTS' balance sheet resources and liquidity is not expected but could negatively affect the ratings.

CREDIT PROFILE

UNTS is a public university system serving the growing North Texas region. The system serves over 43,000 students and consists of the University of North Texas at Denton (UNT-Denton); University of North Texas at Dallas (UNT-Dallas); University of North Texas Health Science Center at Fort Worth (UNT-HSC); and the System Administration.

STRONG DEMAND AND ENROLLMENT TRENDS

System-wide headcount increased 3.1% year-over-year to 43,384 in fall 2016 (preliminary) led by continued strong growth at UNT-Denton (primarily undergraduate, 88% of system-wide total). System-wide FTE increased 3.1% to 35,397 over the same period. UNT-Dallas and UNT-HSC are also poised for some further growth as they build out additional programs and initiatives.

The system has a favorable regional market position based on its presence in the large and growing Dallas-Fort Worth metropolitan area and North Texas region generally. Offerings are diversified by virtue of its component institutions, which have different missions, programs and student segments. Supportive demographic trends and expansion of the system's regional role is expected to sustain healthy demand and enrollment trends.

UNT-DALLAS COLLEGE OF LAW ACCREDITATION

Fitch does not consider the accreditation status of the UNT-Dallas College of Law (CoL) a material concern for UNTS' overall credit profile. In August 2016, a committee of the American Bar Association (ABA) recommended against provision accreditation of the COL, which opened in 2014, citing below-average LSAT scores of admitted students. UNTS has contested the recommendation, and a council of the ABA has remanded the issue back to the original committee for reconsideration. The accreditation issue has the potential to hurt demand for the CoL, although enrollment trends remain positive to date. UNTS is committed to obtaining ABA accreditation and is pursuing all available recourses. Even if the CoL's accreditation issue persists, Fitch does not expect any material effect on UNTS' overall solid demand profile or sound financial position. The program enrolled 387 students in fall 2016, and a significant amount of related capital investment has been state-supported.