OREANDA-NEWS. August 17, 2015.  Fitch Ratings has affirmed the 'BBB-' rating on \\$12.7 million outstanding Build NYC Resource Corporation revenue bonds, series 2012, issued on behalf of Wagner College (Wagner).

The Rating Outlook is Stable.

SECURITY
The bonds are secured by a pledge of gross receipts of the college, supported by a mortgage on all campus property. The debt service reserve on the series 2012 bonds is funded at \\$1.27 million.

KEY RATING DRIVERS

INVESTMENT-GRADE CHARACTERISTICS: The 'BBB-' rating reflects Wagner's historically balanced operating performance and adequate debt service coverage and balance sheet resource levels. Offsetting factors include the pressure associated with a competitive enrollment environment and a high, though stable, tuition discount rate compared to Fitch-rated peers.

ENROLLMENT-DRIVEN OPERATIONS: Wagner's operating performance remains heavily reliant on student-generated revenues and stable enrollment. The college has developed new graduate programs which helps to diversify its academic offerings.

FIXED-RATE DEBT STRUCTURE: Fitch views positively the college's conversion of its variable-rate debt to fixed rate in 2014 through bank loan agreements. Two of the agreements expire in fiscal 2024, which adds some risk. Additionally, the loan agreements contain acceleration clauses.

RATING SENSITIVITIES

STABLE ENROLLMENT LEVELS: Wagner College's inability to stabilize enrollment and grow net tuition could result in a negative rating action.

STABLE OR POSITIVE OPERATING MARGINS: Failure to maintain at least breakeven operating performance and continue to generate maximum annual debt service (MADS) coverage would lead to a negative rating action.

ACCELERATION CLAUSE AFFECTS LIQUIDITY: The college's new fixed-rate debt structure includes liquidity metrics, violation of which could trigger the loan's acceleration. Declining liquidity could negatively affect the rating.

LIMITED DEBT CAPACITY: Issuance of new debt without a commensurate increase in resources would negatively pressure the rating.

CREDIT PROFILE
Wagner College was founded in 1883, and has been located on its Staten Island, New York, campus since 1918. Full-time equivalent enrollment was a steady 2,113 for fall 2014, of which about 84% were undergraduates. The campus provides a liberal arts education, residential college environment, and most undergraduate students attend on a full-time basis and live on the college's 105-acre campus. The largest graduate programs include education, business and nursing. Wagner is accredited by the Middle States Commission on Higher Education, with its next reaccreditation review slated for 2021.

ENROLLMENT DRIVES OPERATIONS
Annual operations are primarily funded from student-generated revenues, which provided 88.5% of fiscal 2014 operating revenues. Because Wagner operates in a highly competitive region, management indicates it plans to continue to expand recruitment beyond the Northeast, and focus on students attracted to its niche (urban campus near New York City offering a liberal arts education).

HISTORICALLY BALANCED FINANCIAL PERFORMANCE
The 'BBB-' rating is supported by Wagner's historically balanced financial performance. Margins improved to 1.4% in fiscal 2014, following three fiscal years of breakeven performance. Fiscal 2014 results continued to be pressured by tuition discounting (41.5% in fiscal 2014). Management comments that the college's discount rate is competitive compared to its regional peers. Favorably, net tuition revenue increased 5.3% in fiscal 2014, and Wagner expects additional growth in fiscal 2015.

College officials report that operations for the fiscal year ending Aug. 31, 2015 are balanced on a budgetary basis, and are expected to be similar to fiscal 2014. Expense containment actions continue. Fitch continues to view Wagner's conservative management practices favorably, which include conservative enrollment assumptions and gradually increasing budget contingencies.

IMPROVED LEVERAGE
Wagner entered into a loan agreement with TD Bank (rated 'AA-/F1+' by Fitch) in December 2014 to convert its 80% variable-rate debt structure to fixed-rate. Fitch views Wagner's use of this shift as positive.

Pre-restructuring, Wagner's debt burden was high at 8.7% of fiscal 2014 operating revenues, and remains high at about 8.4%. Current MADS is about \\$6.1 million and occurs in 2021.

Net income available for debt service in fiscal 2014 provided an improved 1.7x current debt service coverage (up from 1.6x in fiscal 2013); MADS coverage was positive at 1.14x (improved from 1.08x in fiscal 2013). Fitch anticipates ongoing management actions to grow net tuition revenue and increase operating margins. There are no additional debt plans at this time.

SOLID BALANCE SHEET FOR RATING CATEGORY
A sufficient balance sheet also supports Wagner's investment-grade rating. Available funds (AF), defined by Fitch as cash and investments not permanently restricted, has increased nominally in each of the last five fiscal years, and was \\$56.8 million in fiscal 2014. AF was equal to 76% of outstanding debt (\\$74.7 million, including capital and operating leases), 78.3% of pro forma debt (\\$72.5 million), and 79.5% of operating revenues (\\$72.4 million).

At June 30, 2015, Wagner's investments had a market value of \\$80.6 million, and were roughly 60% equities, 20% fixed-income and cash, and 20% alternative assets (in line with the college's investment policy).

While Fitch favorably views Wagner's shift to a fixed-rate debt portfolio, risks associated with the loan agreement's 10-year term remain. At the end of the 2024 loan term, about \\$24 million in related term loans is expected to be outstanding. In addition, one term loan has an acceleration clause triggered by debt service default. Fitch will monitor this risk, but at this time Fitch considers acceleration risk to be remote.