Fitch Affirms Furman University, SC's Revenue Bonds at 'AA-'; Outlook Stable

Fitch Ratings affirms its 'AA-' rating on $102.43 million of the Educational Facilities Authority for Private Nonprofit Institutions of Higher Learning, South Carolina (the authority) bonds issued on behalf of Furman University (Furman).

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the authority, secured by the general obligation of Furman.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: Furman's 'AA-' rating continues to reflect its sound financial cushion, track record of positive operating performance supported by stabilizing enrollment levels, and healthy debt service coverage. Offsetting the aforementioned strengths is the university's high rate of tuition discounting and fairly aggressive capital structure.

BALANCE SHEET APPRECIATION: Modest, yet consistent operating surpluses, and improving financial market performance have been instrumental in rebuilding Furman's level of available funds, or cash and investments not permanently restricted.

ENROLLMENT STABILITY: Student headcount increased to a six year high in fall 2011, though student selectivity for the incoming freshmen class weakened. Further enrollment growth is somewhat limited by the physical plant constraints and an on-campus residency requirement for all students.

LIMITED REVENUE DIVERSITY: Similar to many other private universities, Furman remains dependent on student revenues and, as a result of its competitive environment, discounts a significant portion of student tuition annually. Conservative budgetary practices and cash flow management strategies throughout the year help to mitigate these concerns.

CREDIT PROFILE:

Furman's unrestricted operating margin, inclusive of the investment spending policy payout, improved to 2.1% in fiscal 2011 as a result of multiyear budgetary cuts implemented in earlier fiscal years. The university expects incremental improvement and close to breakeven margins for fiscal 2012 as well.

Operating surplus generation, recovery in global financial markets and prudent resource management enables Furman to maintain its primary financial strength, its level of balance sheet resources. As of fiscal year end 2011, the university's available funds increased by 29%, to $339 million. As a percentage of both operating expenditures and leverage, available funds represented a solid 266.4% and 310.2%, respectively.

Furman's track record of closely managing and monitoring its liquidity needs offsets its modestly aggressive allocation to alternative investments (32%), namely hedged strategies and real asset funds.

Fine tuning student admission standards and tuition discounting strategies for fall 2011 resulted in the largest incoming freshmen class in the university's history (794 freshmen), while the discount rate for freshmen declined 11% according to management. Total university headcount and full time equivalent enrollment (FTE) simultaneously reached an all-time high in fall 2011.

Despite this recent growth, Furman plans to only modestly increase its enrollment to approximately 3,000 FTEs, recognizing capacity limitations of its existing physical plant, notably student housing. With all but a few exceptions, Furman requires all of its students to reside in on-campus housing.

The university's capital structure is fairly aggressive, with considerable exposure to variable rate debt, interest rate hedges, and non level amortizing debt instruments. As of fiscal year end 2011, Furman's outstanding debt totaled $109.5 million, including non cancellable operating and capital leases and lines of credit.

Approximately 40% of the portfolio is in variable rate mode, with 36% of this exposure synthetically fixed. Management's experience in monitoring the liquidity needs of the debt portfolio helps to offset the risks attendant to floating rate debt and associated swaps.

Furman's amortization schedule includes a large bullet payment ($16.3 million) occurring in fiscal 2027 which is maximum annual debt service (MADS). MADS comprises a high pro forma debt burden of 12.5% based on fiscal 2011 operating revenue. Assuming the bullet payment is evenly amortized through final maturity of outstanding debt, the debt burden declines to a more manageable 5.3%.

Management intends to refinance the bullet payment prior to maturity in fiscal 2027. As implied by its rating level, Fitch believes Furman has the financial wherewithal to manage refinancing risk either with internal resources or externally through a capital markets refinancing.

Furman appointed a new president in fiscal 2010 following the retirement of the previous president after 16 years of service. The new president's recently announced strategic plan for Furman encompasses three broad areas: culture, identity and financial efficiency, and calls for select strategic capital investments, including student housing, the first phase for which debt issuance is planned in fiscal 2013. Furman was founded in 1826 and is a private, co-educational institution located in Greenville, South Carolina.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria' (June 11, 2011);

--'U.S. College and University Rating Criteria' (July, 14, 2011);

--'Fitch Rates Furman University (SC) Revenue Bonds 'AA-'; Outlook Stable' (Feb. 11, 2010).

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830

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