OREANDA-NEWS. Fitch Ratings has affirmed the 'BB+' rating on approximately \\$66.9 million of Gainesville Redevelopment Authority, GA series 2007 revenue refunding bonds issued on behalf of Riverside Military Academy (RMA).

The Rating Outlook is Stable.

SECURITY

The bonds are an absolute and unconditional obligation of RMA, secured by a first lien on the academy's campus and a cash-funded debt service reserve sized to maximum annual debt service (MADS).

KEY RATING DRIVERS

MIXED FINANCIAL PROFILE: The 'BB+' rating primarily reflects this military-style boys' college preparatory school's recurring operating deficits, revenue concentration, and very high debt burden. Partially offsetting factors include adequate balance sheet resources that, while depleted from previous years, continue to support the rating.

IMPROVED OPERATIONS: RMA's margins have improved but were still negative on a full accrual basis in fiscal 2014 (and projected fiscal 2015). However, enrollment growth, tuition increases, and expense management have enabled RMA to steadily reduce its deficit over time.

STEADY ENROLLMENT GROWTH: RMA's small student population continues to grow, even with modest annual tuition increases. Enrollment at the start of fall 2015 exceeds expectations in the academy's 2010 multiyear business plan.

HIGH LEVERAGE: RMA's debt burden remains very high, with MADS representing 31.7% of fiscal 2014 unrestricted operating revenues. Fiscal 2015 burden is expected to be somewhat more moderate but still high. The academy remains modestly reliant on endowment to cover annual debt service as institutional coverage has been less than 1.0x since fiscal 2010. RMA has no new debt plans at this time, with fundraising expected to support capital expenditures.

RATING SENSITIVITIES

ENROLLMENT STABILITY: Riverside Military Academy's inability to maintain stable enrollment, given the academy's significant reliance on net tuition and fees, could negatively pressure the rating.

BALANCE SHEET LIQUIDITY: Continuation of positive trends with RMA's balance sheet ratios are necessary to maintain the current rating. Any deviation from the current level of the academy's financial cushion may have negative rating implications.

CREDIT PROFILE

Founded in 1907, RMA is a military-style college preparatory school for boys, offering boarding and day school programs for grades 7-12. The academy is located on a 206-acre campus in Gainesville, Georgia, about 60 miles northeast of Atlanta.

BALANCE SHEET SUPPORTS RATING

RMA's balance sheet resources continue to support the rating. Available funds (AF), defined by Fitch as unrestricted cash and investments, were \\$36.5 million at May 31, 2014, equal to a solid 177.3% of expenses but a more modest 51.5% of debt. Preliminary fiscal 2015 results indicate that available funds ratios will be similar. The nominal amount of AF has been flat or declined modestly in recent years, due to investment losses and use of the endowment to support annual debt service.

In recent years, RMA reduced its exposure to alternative and equity investments and, as of fiscal 2015, maintains modest exposure to alternatives and limited exposure to equity markets after hiring a new endowment investment advisor. Fitch views the academy's more conservative investment strategy positively due to moderate reliance on endowment spending for debt service. RMA's current liquidity position, although reduced from previous levels, continues to support the rating.

OPERATING DEFICITS CONTINUE TO NARROW

Operating deficits persist. However, RMA's operating margin improved to negative 15.4% in fiscal 2014 compared to negative 18.9% in fiscal 2013. There has been modest but steady operating improvement since at least fiscal 2010. Preliminary fiscal 2015 operations indicate that the margin is expected to improve further (supported by strong fiscal 2015 enrollment gains), but not yet achieve GAAP break-even operating performance.

At Fitch's last review, management indicated its goal was to lower its endowment draw to 5% over several years, per the investment policy adopted by RMA's board. The draw for operations was 7.4% in fiscal 2014. Positively, management reports that the actual draw for fiscal 2015 was 4.4% (\\$1.8 million), representing a significant improvement over the past few years. For the fiscal 2016 budget, management expects the endowment draw percentage to improve again. Fitch considers the more traditional draw of 5% of endowment market value as sustainable long-term, and will monitor operations and the endowment draw over time.

Fitch notes positively that net operating revenues continue to grow and are ahead of plan, due mostly to enrollment growth, steady tuition increases, and moderate tuition discounting. RMA management reports it continues to monitor and contain operating expenses.

GROWING ENROLLMENT

Enrollment typically fluctuates during an academic year. RMA measures its initial fall enrollment and tracks rolling enrollment as cadets leave and enroll during the year. Following enrollment declines during 2005-2008, enrollment has grown. For fall 2014 (fiscal 2015), initial enrollment increased to 485 cadets from 436 the prior year and compared to a budget of 461. During the academic year enrollment through April 2015 was 607, but ended the year at 521, as 86 students either withdrew, were dismissed, or were expelled.

For fall 2015, RMA enrolled 521 total boarding and day cadets, exceeding the fiscal 2016 budget of 485 total boarding and day cadets. Fitch views RMA's rating stability partly predicated on the academy's ability to maintain stable to growing enrollment given its high reliance on tuition and fee revenue (averaging 78% of unrestricted operating revenues over the past five fiscal years).

HIGH LEVERAGE

Outstanding debt was \\$66.9 million as of May 31, 2015. The series 2007 bonds are fully amortizing fixed-rate debt, with level debt service of about \\$5.6 million. RMA's debt burden remains very high, with fiscal 2014 MADS equal to 31.7% of unrestricted operating revenues. Management reports that preliminary fiscal 2015 results indicate a further moderating of the debt burden, although it is still very high at over 27%. No new debt is planned, and Fitch views RMA as having no new debt capacity.

Debt service coverage has been below 1.0x since at least fiscal 2010, and the academy uses reserves and quasi-endowment to pay part of debt service. The coverage ratio has been improving along with operations; it was 0.7x in fiscal 2014, compared to 0.2x in fiscal 2010. Management reports that preliminary coverage for fiscal 2015 could be close to 1.0x, representing a significant improvement. Management reports that no bond covenants have been violated. Fitch will monitor operations over time for continued improvement in debt service coverage, and moderation in the high debt burden.

The academy has no new debt plans. Various maintenance items include some campus renovations and gradual replacement of RMA's aging bus fleet and are expected to be funded by gifts. Management indicates that another housing facility might be needed if enrollment continues to grow, but nothing specific is being considered at the present time.