OREANDA-NEWS.  Fitch Ratings assigns an 'AA' rating to approximately \\$28.1 million of The Trustees of Ivy Tech Community College (Ivy Tech, or ITCC) of Indiana Student Fee Bonds, Series T.

The series T bonds are expected to sell via negotiated sale on or about the week of July 20. Proceeds will refund a portion of series K Student Fee Bonds and pay associated costs of issuance.

In addition, Fitch affirms the rating on approximately \\$263.4 million of outstanding Student Fee Revenue Bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of and first lien on all academic fees (including tuition) assessed to students.

KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: The 'AA' rating reflects this comprehensive community college's sound market position, increased state appropriations budgeted through fiscal 2017, and healthy financial profile overall. Counterbalancing factors include exposure to fluctuations in federal funding for Pell grants and a moderate debt burden.

SOUND MARKET POSITION: ITCC is the primary state provider of two-year associate degrees and technical certificates, a feeder to the state's four-year public institutions, and a source of various training and continuing education programs. Fitch views favorably ITCC's implementation of academic improvement initiatives.

HEALTHY FINANCIAL PROFILE: ITCC's operating margin has been solidly positive over the past five years, reflecting steadily growing levels of state appropriations and prudent financial management in the midst of downward enrollment trends. Annual operating surpluses have contributed to significant gains in the college's unencumbered financial resources, which provide for satisfactory coverage of long-term debt and softer, though still adequate, coverage of operating expenses.

MODERATE DEBT BURDEN: ITCC maintains a moderate pro forma debt burden, a track-record of relatively good debt service coverage from operations, a conservatively structured debt portfolio, and a long history of state reimbursement for debt service on Student Fee Bonds, which constitute nearly all of the college's long-term debt. The college does not have any new money debt plans over the next two years.

RATING SENSITIVITIES
REVENUE PRESSURES: Ivy Tech Community College's operating performance remains sensitive to material shifts in student demand and funding support from state and federal sources. Downward rating movement is possible if adverse shifts in the latter revenue sources impose significant, prolonged stress on financial resources for the college.

CREDIT PROFILE
ITCC was founded in 1963 as the Indiana Vocational Technical College and has numerous academic sites including 24 campuses throughout the state. In 2005, ITCC was designated as the state's comprehensive community college, and all of ITCC's various facilities are accredited as a single institution. The college's regional accreditation by the North Central Association of Colleges and Schools was most recently reaffirmed for a 10-year period commencing in 2009.

Ivy Tech has recently been questioned by Indiana lawmakers and the state's workforce council about seemingly low graduation rates vis-a-vis the effectiveness of training dollars that the college receives. ITCC is in the process of providing stakeholders with data to reflect the success of its students in applicable programs.

STEADY OPERATING PERFORMANCE
ITCC consistently generates positive operating margins, averaging 6.9% between fiscal years 2010 and 2014, including 5.8% in the most recent year. Fitch notes that fiscal 2014 resulted in an operating surplus despite a year-over-year decline in total full-time equivalent (FTE) enrollment, reflecting management's ability and willingness to make timely adjustments to the college's expense base, including cost savings associated with the consolidation of 14 administrative regions into nine.

Management reported that both operating revenues and expenses in fiscal 2015 are trending below audited fiscal 2014 results; yet, a release of a 2% (\\$4 million) reserve held by the governor will help contribute to a projected 3%-5% positive operating margin.

State appropriations for ITCC increased by a healthy 7.8% in fiscal 2014, in part reflecting the college's success in garnering performance based funds. State general operating funding is expected to grow year-over-year by 1.5% (to \\$200 million) in fiscal 2015, 4% (to \\$209 million) in fiscal 2016, and 2.9% (to \\$216 million) in fiscal 2017.

MANAGEABLE ENROLLMENT SHIFTS
Enrollment at ITCC, as at many community colleges, has fluctuated with economic conditions and unemployment levels. As such, ITCC has experienced a decline in its FTE enrollment to 61,807 in the 2014-15 academic year, down 8.1% from 67,265 in the 2013-14 academic year.

Student fee collections (representing nearly a quarter of ITCC's total revenue base) in fiscal 2014 have grown 83% since fiscal 2007, with preliminary fiscal 2015 collections at \\$230 million. Still, student fee collections have steadily declined since the peak in fiscal 2011, driven in part by countercyclical enrollment as well as a reduction in students due to the elimination of the summer Pell Grant.

Management expects fall 2015's enrollment level to be flat with fall 2014, although ITCC has underscored the college's desire to focus on success metrics for the existing student body rather than the need to grow demand. Such initiatives include providing students remediation concurrently with credit-earning courses, reviewing best practices to improve high-rate-of-failure courses, and allowing students who did not complete coursework at four-year colleges to transfer credits back into ITCC towards a two-year degree.

IMPROVING FINANCIAL CUSHION
The college's financial cushion has improved significantly in recent years, despite some enrollment pressures, further evidencing sound financial management. Available funds, defined by Fitch as cash and investments less certain non-expendable net assets, totaled approximately \\$316.6 million as of June 30, 2014, or 9.2% above the prior year and 75.5% over fiscal 2010 levels.

These unencumbered resources covered pro-forma long-term debt by a satisfactory 84.6% and fiscal 2014 operating expenses by a softer, though still adequate, 51.6%. Both metrics represent improvements over the prior year. The college's investment portfolio remains conservative.

Fitch's calculations of ITCC's available funds exclude the assets of the Ivy Tech Foundation (the foundation), which serves as the college's primary fundraising arm. As of June 30, 2014, the foundation had a net asset balance of \\$104.2 million, including \\$51.4 million in total cash and investments (including a permanent endowment of \\$26.3 million).

The foundation is currently in a major fundraising campaign with a goal of \\$500 million through 2019, with funds received in recent years primarily tied to capital improvements and program support. Through fiscal 2015, the college is projected to be at 70% of its goal. Fitch views positively Ivy Tech's atypical (when compared to other community colleges) fundraising capabilities on a statewide system basis.

MODERATE LEVERAGE
Post-issuance maximum annual debt service (MADS) is expected to be \\$32.7 million (occurring in fiscal 2017), representing a moderate 5.3% of unrestricted fiscal 2014 operating revenues. In addition, ITCC has a track record of relatively good debt service coverage from operations (2.2x in fiscal 2014) and a conservatively structured, fixed-rate debt portfolio with a highly front-loaded amortization schedule.

The series T bonds will be on parity with the outstanding Student Fee bonds. The college's debt portfolio includes direct bank purchase agreements with Old National Bank (not rated by Fitch) and PNC (long-term rated 'A+' by Fitch, as of October 2014), both of which refunded student fee revenue bonds. Both series are on parity with outstanding debt and are structured to be fully amortizing (through fiscal 2018).

The majority of the college's debt portfolio (with the exception of a \\$2.8 million promissory note and \\$38.1 million in capital leases) qualifies for fee replacement, which allows ITCC to receive annual debt service reimbursement from the state.

Since 1971, the state of Indiana has fully reimbursed student fee revenue bonds debt service via annual appropriation; Fitch expects the college to continue receiving timely reimbursement for student fee revenue bonds debt service. Future debt issuances are expected to be limited to amounts approved by the state for full reimbursement of debt service. At present, there are no approved Student Fee Bond projects awaiting further authorization by other state agencies or the governor.