OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to approximately \$49.5 million of University of Akron, OH (UA) general receipts bonds, series 2015A, which are expected to sell via negotiation the week of April 6. Proceeds of the bonds will be used to advance refund certain outstanding maturities of the series 2008A and series 2008B bonds and to pay costs of issuance.

In addition, Fitch affirms the outstanding ratings on the following bonds issued by UA:

--\$366 million of outstanding UA general receipts bonds at 'AA-';
--\$32 million of outstanding Summit County Port Authority (SCPA) student housing lease revenue bonds, series 2011 (UA student housing project) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

General receipts bonds are special obligations of UA secured by a first lien on general receipts, which exclude state appropriations and donor-restricted gifts. Student housing lease revenue bonds are secured by a master lease agreement between UA and SCPA, with university lease payments equal to annual debt service. Lease payments are an unsecured general obligation of the university.

KEY RATING DRIVERS

STABILIZING CREDIT CHARACTERISTICS: UA is a large, public comprehensive teaching and research university in Akron, OH. The 'AA-' rating reflects UA's large enrollment base, adequate balance sheet cushion, and limited capital needs. The Stable Outlook reflects stabilizing though still pressured demand and enrollment trends and operating performance meeting expectations in fiscal 2014. Offsetting factors include enrollment-driven operating pressure and a moderately high debt burden.

CONTINUED OPERATING IMPROVEMENT EXPECTED: Operating margins improved as expected in fiscal 2014 after significant operating deterioration in fiscal 2013. Fitch believes fiscal 2013 was the low point and expects UA to make continued progress toward structural budgetary balance. UA has limited capacity to make further cuts or increase tuition rates; long-term financial health will depend on enrollment trends.

ENROLLMENT PRESSURES PERSIST: Enrollment declines slowed in fall 2014 but UA remains pressured by a competitive market and unfavorable demographic trends in the region. FTE fell 2.5% to 20,448 in fall 2014, less the 6.5% decline in the prior year. The incoming class size stabilized as expected in fall 2014, which Fitch views favorably. Management expects overall enrollment to stabilize by fall 2018 when recruiting and retention strategies begun in 2012 will be fully phased in.

ADEQUATE BALANCE SHEET CUSHION: UA's financial cushion remains stable. Available funds provide an adequate but not strong cushion relative to operating expenses and outstanding debt.

MODERATELY HIGH DEBT BURDEN: UA's moderately high pro forma debt burden is partially offset by its acceptable debt service coverage from operations, including endowment income, and limited capital needs.

RATING SENSITIVITIES

CONTINUED OPERATING IMPROVEMENT: Failure to achieve projected improvement in operating results could negatively pressure the rating.

DEBT MANAGEABILITY: The issuance of additional debt, while not anticipated, without a commensurate growth in financial resources and revenues could negatively affect the rating.

CREDIT PROFILE

Originally founded in 1870, UA is one of 13 public universities in the state of Ohio (general obligation bonds rated 'AA+'/Stable Outlook). The university has 10 degree-granting colleges serving students on its main campus in Akron, OH and five other locations throughout northeast Ohio as well as online.

CONTINUED OPERATING IMPROVEMENT EXPECTED
Operating margins improved as expected in fiscal 2014 after significant operating deterioration in fiscal 2013. UA posted a slightly positive 0.9% margin in fiscal 2014, inclusive of foundation support and strong investment returns. UA's core margin still improved measurably when excluding higher investment earnings. The university's budget remains pressured, but Fitch believes that fiscal 2013 performance was the financial low point for UA. Improved operating results in fiscal 2014 reflect management's efforts to reduce and align expenses to revenues, as well as strong investment earnings. UA has limited capacity to make further cuts or increase tuition rates, but Fitch expects continued progress toward structural budgetary balance. Failure to continue operating improvements as projected could negatively pressure the rating.

ENROLLMENT PRESSURES PERSIST
Enrollment declines slowed in fall 2014, but UA remains pressured by a competitive market and unfavorable demographic trends in the region. FTE fell 2.5% to 20,448 in fall 2014, less the 4.5% decline budgeted by management and less than the sharp 6.5% decline in the prior year. UA made a strategic decision beginning in fall 2012 to improve its academic reputation, student quality and success rates by restructuring its admissions, financial aid and student support practices. Most notably, UA ended open enrolment at the main campus. After dramatic decreases in the size of fall 2012 and 2013 incoming classes, Fitch views level matriculation in fall 2014 with higher average standardized test scores as a sign that enrollment is starting to stabilize in line with the strategic plan. Management expects overall enrollment to stabilize by fall 2018 when recruiting and retention strategies begun in 2012 are fully phased in. However, material deviation from this expectation could lead to negative rating action.

ADEQUATE BALANCE SHEET RESOURCES
Balance sheet resources have remained fairly stable over the past few years and provide a modest but adequate financial cushion. Available funds of \$207.1 million at June 30, 2014 covered fiscal 2014 operating expenses (\$490 million) and pro forma debt (\$456.3 million) by 42.3% and 45.4%, respectively. The university also benefits from fundraising and endowment support. A recently completed comprehensive campaign and strong investment returns have bolstered UA's endowment investments, which totaled \$228.5 million as of June 30, 2014, held between the university and the legally separate UA Foundation. These donor-restricted funds are not included in available funds, but support the university's operations through annual distributions of investment income.

MODERATELY HIGH DEBT BURDEN
UA's debt burden is moderately high. Pro forma MADS of \$47.2 million, which includes a \$15 million balloon maturity in 2029, consumes a high 9.6% of fiscal 2014 operating revenues. Excluding the balloon maturity, adjusted pro forma MADS of \$38.6 million (2018) is more manageable, consuming a moderately high 7.8% of fiscal 2014 operating revenues. Coverage of adjusted pro forma MADS from operations improved to an adequate 1.7x in fiscal 2014, up from a more pressured 1.2x in fiscal 2013. The university's debt profile is fairly conservative (all fixed rate and primarily amortizing), which Fitch views positively. The current refunding will also generate a present value savings of approximately \$3 million using a level savings structure and with no change to the final maturity of the bonds. Following significant debt-funded capital expansion in recent years, UA has limited capital plans and no new debt plans at this time.