OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on approximately \\$206 million of outstanding Red River Education Finance Corporation (RREFC), higher education revenue bonds (series 2007, 2010, 2011, and 2013), as well as the 'AA-/F1+' rating on \\$130 million of outstanding RREFC higher education variable-rate demand bonds (VRDBs) (unenhanced series 2000 and 2006), issued on behalf of Texas Christian University (TCU).

The short-term 'F1+' rating on the series 2000 and 2006 VRDBs is supported by an SBPA provided by the Northern Trust Company (rated 'AA-/F1+' by Fitch).

The Rating Outlook is Stable.

SECURITY

The bonds are an unsecured general obligation of TCU.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The 'AA-' rating primarily reflects TCU's steady, positive operating results (11% margin in fiscal 2014), driven by favorable enrollment, prudent financial management, solid balance sheet ratios relative to operating expenses and debt, and robust fundraising.

TUITION-DEPENDENT INSTITUTION: Like many private universities, TCU remains dependent on student-generated revenues (about 77% of unrestricted operating revenues). Concern over the concentration is partially offset by conservative budgetary practices and favorable enrollment trends.

HIGH DEBT BURDEN: Periodic investment in facilities coupled with an aggressive debt structure with bullet maturities have resulted in a very high MADS burden. This is mitigated in part by solid financial resource ratios and operating surpluses.

RATING SENSITIVITIES

LEVERAGE-DRIVEN PRESSURES: The issuance of significant additional debt without solid operating surpluses and commensurate growth in financial resources could negatively pressure the rating. Additionally, failure to maintain Texas Christian University's current operating and liquidity position, given its aggressive debt structure with several bullet maturities, could pressure the rating.

CREDIT PROFILE

Located on a 277-acre campus in Fort Worth, TX, TCU is a private co-educational university affiliated with the Christian Church (Disciples of Christ) and Brite Divinity School. The university includes eight schools and colleges, with the largest enrollments at the school of business, college of liberal arts, college of science and engineering, and college of nursing and health sciences. TCU offers a full range of baccalaureate and graduate degrees through the doctorate level. TCU is currently in the quiet phase of a capital campaign.

TCU and the University of North Texas (rated 'AA' by Fitch) Health Science Center (which currently only offers a D.O. program) have entered into a memorandum of understanding to create a new medical school in Fort Worth offering an M.D. curriculum. Management reports the school plans to accept its first class in 2018 with an initial class of 60 students, growing incrementally to 240 students. TCU will be leasing space at the Health Center for this operation.

ENROLLMENT SUPPORTS POSITIVE OPERATIONS

TCU has consistently produced positive operating results over the past five years, averaging 7.3% annually, including an 11% margin in fiscal 2014. These results are supported by strong financial management, and conservative budgeting practices. Management believes that fiscal 2015's operating performance is expected to be similar to fiscal 2014 results.

TCU's high reliance on student charges for operations for the rating category (76.8% of Fitch adjusted unrestricted fiscal 2014 operating revenues) underscores the importance of effective enrollment management. The university has met its strategic initiative to attain a total student body of 10,000, as enrollment in fall 2014 was 10,033.

SOUND BALANCE SHEET

The university's financial cushion remains sound for the rating category. Available funds, defined by Fitch as cash and investments not permanently restricted, totaled \\$1.26 billion at the end of fiscal 2014. Relative to fiscal 2014 operating expenses and pro forma debt, TCU's available funds provided solid coverage of 338% and 221%, respectively.

Following the economic downturn, TCU adjusted its endowment draw, temporarily exceeding its endowment payout formula of 5%. At the end of fiscal 2014, TCU had prudently contributed \\$19 million back to the endowment, representing the cumulative difference between the Board-approved constant spending limit and the university's policy formula. Beginning in fiscal 2015, management has resumed the historical 5% spending limit, resulting in a fiscal 2015 payout of \\$59 million and fiscal 2016 payout of \\$63 million.

AGGRESSIVE THOUGH MANAGEABLE DEBT BURDEN

Similar to many highly rated institutions, TCU's debt structure has bullet maturities occurring in fiscal years 2021 (\\$85.5 million), 2026 (\\$30 million), 2030 (\\$50 million), 2035 (\\$80 million), and 2045 (\\$50 million). Concern is somewhat offset by TCU's operating surpluses, significant level of reserves and historical access to the capital market. Excluding bullet maturities, TCU's annual debt service is upward trending between fiscal years 2015 and 2020 and declines gradually thereafter (between bullet maturities).

TCU management reports that gift pledges are expected to pay the 2021 bullet maturity. Concern regarding the high 23.3% MADS burden is partially tempered by TCU's significant level of unencumbered reserves relative to long-term debt. Fitch takes comfort that as of May 31, 2014, the fair value of TCU's liquid investments covered fiscal 2014 operating expenses by about 1.9x.

Additionally, the university consistently generates satisfactory MADS coverage from operations (1.1x in fiscal 2014). Fitch expects TCU will maintain strong market access to manage large bullet maturities, should it be necessary. With no solid plans for new debt issuance and a growing revenue base, Fitch expects that TCU's leverage ratios will moderate over time.

Some of TCU's direct bank placements provide for acceleration under certain, albeit remote, circumstances. At this time, TCU has ample cash reserves to cover any acceleration, which action is considered remote by Fitch at this time.