OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to approximately \$65.6 million of South Carolina Jobs-Economic Development Authority economic development revenue and refunding bonds series 2015 issued on behalf of Furman University (Furman).

The bonds are expected to be sold via negotiation on or about the week of July 8th. Proceeds will be used to renovate student housing on campus (\$25 million), to advance refund certain existing bonds (\$40 million of series 2006A), and pay costs of issuance.

In addition, Fitch affirms about \$96.6 million of outstanding Educational Facilities Authority for Private Nonprofit Institutions of Higher Learning, SC revenue bonds issued on behalf of Furman, which include the series 2006A to be refunded.

The Rating Outlook is Stable.

SECURITY
The bonds are a general unsecured obligation of the university, payable from all legally available funds.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: Furman's 'AA-' rating reflects a sound liquidity position, consistently positive operations (inclusive of the full endowment payout), and adequate debt service coverage which is counterbalanced by a competitive operating environment driving high tuition discounting, an aggressive capital structure, high debt burden, and exposure to variable-rate debt and its related risks.

BALANCE SHEET STRENGTH: Consistent operating surpluses on an adjusted basis and improving financial market performance have been instrumental in rebuilding the university's level of available funds, or cash and investments not permanently restricted. An established and successful fundraising culture further adds to balance sheet resources and is viewed favorably.

ENROLLMENT STABILITY: Student headcount remained relatively flat in fall 2014, while student selectivity strengthened due to adjusted admission standards. Further enrollment growth remains somewhat limited by physical plant constraints and an on-campus residency requirement for all students, as well as the desire to maintain desired class sizes.

LIMITED REVENUE DIVERSITY: Unlike many private universities, Furman is less dependent on student-generated revenues as a result of significant endowment spending and a competitive operating environment which requires that it discounts a significant portion of student tuition annually. Conservative budgetary practices and cash flow management strategies throughout the year help to mitigate these concerns.

RATING SENSITIVITIES

FINANCIAL RESOURCES: A material shift in Furman University's balance sheet resources, its primary major financial strength, could drive a rating change.

ENROLLMENT MANAGEMENT: Furman University's inability to maintain enrollment stability could challenge operating performance, which would negatively impact the rating.

CREDIT PROFILE

Furman is a private, co-educational liberal arts institution, founded in 1826, located in Greenville, South Carolina. In fall 2014, Furman enrolled approximately 2,810 undergraduate and 163 graduate students on its 750-acre campus. Furman offers majors and programs in 42 subjects. Most of Furman's undergraduates are from the South Atlantic region, but more than 40 states and 15 foreign countries are represented in its student population.

Furman's 12th president joined in July 2014 after the last president resigned in July 2013.

Fitch views the new president's support for Furman's current strategic plan, and the longevity of the current leadership team, as a credit positive. All other cabinet members remain in place providing continuity in the budgeting process.

COMPETITIVE OPERATING ENVIRONMENT

Since Furman relies heavily on student-generated revenues (net tuition and fees, and auxiliary revenues accounted for about 70% of fiscal 2014 unrestricted operating revenues), close attention to enrollment management is essential.

Given the competitive operating environment, Furman remains affordable by discounting a significant portion of student tuition annually. Favorably, Furman's sticker price for fall 2014 is not the highest of its peer group but its operations could be challenged by several lower-priced public alternatives.

To remain competitive, Furman adhered to a 0.5% step-down in the level of tuition rate increases starting in fall 2014. Tuition growth rates under the plan was as follows: 3.5% (fall 2014 and 3.0% fall 2015.

LIMITED BUT STEADY ENROLLMENT

Furman's enrollment base is small but stable. Fall 2014 total headcount enrollment was essentially flat at 2,973 students. Furman plans for slight growth in its undergraduate day student population recognizing capacity limitations of its existing physical plant, notably student housing, and its small class size represented by low student-to-faculty ratios. With all but a few exceptions, Furman requires all of its students to reside in on-campus housing.
Fitch views this steady enrollment trend favorably as undergraduate headcount accounts for 95% of students. Graduate headcount, which makes up a very small portion of student headcount, increased 5% to 163 students. Ongoing efforts to fine-tune admission standards and tuition pricing strategies, with the goal of maintaining a relatively stable freshman class size and high student quality, will be key to maintaining rating stability.

In fall 2013, Furman's modified admissions strategies and increased student aid, after strategically lowering the discount rate for first-time students in fall 2012, leading freshmen yield to drop that same year.

The discounting rate was raised for first-time students beginning in fall 2013 which has led to an uptick in matriculating freshmen. As a result of the new strategy, Furman's acceptance rates have improved and is more in-line with pre-recession levels; 68.8% in fall 2014, from a high 83% in fall 2011. Fitch notes, however, that matriculation rates though improved, are still low, reflecting the competitive environment in which Furman operates.

Fitch believes that strong student quality remains a positive credit factor which drives Furman's high retention and graduation rates and provides enrollment stability.

SOLID OPERATIONS

Historically, Furman's unrestricted operating margin, inclusive of the investment spending policy payout, has been positive. Margins improved to 6.8% in fiscal 2014 from 4.5% in fiscal 2013, as a result of stability in enrollment, regular tuition increases, as well as a rebound in financial markets and ongoing expense containment.

Furman's endowment pool spending policy, established in 2000, is 4.5% of the endowment base. The effective spending rate, including the endowment pool and investments held by others, (averaging 4.1% per year over a 10-year period), along with investment and interest income, comprised about 19.5% of Furman's revenues in fiscal 2014, which is high but consistent with prior years. Fitch believes the endowment draw is sustainable at this level.

The university expects similar operating results for fiscal 2015 as the result of several cost containment measures. Favorably, adjusted net income from operations of \$25.6 million provides adequate coverage of maximum annual debt service (MADS) of 1.5x despite an uneven amortization schedule. Average annual debt service coverage is stronger at 4.0x.

LIQUIDITY PROVIDES FLEXIBILITY

Operating surplus generation, recovery in global financial markets, and prudent resource management enable Furman to maintain its primary financial strength - its level of balance sheet resources.

As of fiscal year end (FYE) 2014, the university's available funds increased by 17.2%, to \$411.3 million. As a percentage of both operating expenditures and pro forma debt, available funds represented a solid 292% and 324%, respectively. The university's track record of closely managing and monitoring its liquidity needs offsets its moderately aggressive allocation to alternative investments (36.3%).

Furman's recently completed capital campaign, which exceeded \$400 million, contributed to the endowment growth. Campaign proceeds are largely used for scholarships, with remaining funds supporting operations and capital projects. Fitch believes Furman's established and successful fundraising culture, with a strong alumni participation rate, provides additional financial flexibility.

MANAGEABLE CAPITAL STRUCTURE

The university's capital structure is fairly aggressive, with considerable exposure to variable-rate debt, an interest rate hedge, and non-level amortizing debt instruments. As of FYE 2014, Furman's outstanding debt totaled about \$101.9 million, including term loans and capital leases. Approximately 43% of the portfolio is variable-rate demand bonds, with approximately 13.9% of this exposure synthetically fixed. Management's balance sheet resources and experience in monitoring the liquidity needs of the debt portfolio helps to offset the risks attendant with floating-rate debt and associated swaps.

Furman's current amortization schedule includes large bullet payments in fiscal 2016 and 2027 and several long-dated bullet maturities occurring in fiscals 2036-2040. The series 2015 proposed restructuring and new money debt structure will smooth out the fiscal 2016 bullet and establish a more level debt service payment structure, eliminating some of the long-dated bullets. Further, issuance of the fixed-rate bonds reduces variable rate proportion in the portfolio though still high at about 37%.

Post issuance, MADS in fiscal 2027 includes a \$17.1 million bullet payment and a high pro forma debt burden of 11.3% based on fiscal 2014 adjusted operating revenue. Assuming the bullet payment is evenly amortized through final maturity of outstanding debt, the debt burden declines to a more manageable 4.5%.