OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' rating on approximately $67.3 million of outstanding Pinellas County Educational Facilities Authority, FL (PCEFA) revenue and refunding bonds series 2011 and series 2012, issued on behalf of Barry University (Barry, or the university).

The Rating Outlook is Stable.

SECURITY

Bonds are a general obligation of Barry, further supported by a cash-funded debt service reserve.

KEY RATING DRIVERS

CHALLENGED OPERATING ENVIRONMENT: Barry's 'BBB' rating reflects its ability in recent years to absorb enrollment declines and the resulting impact on tuition revenues. The Stable Outlook incorporates Fitch's expectation that the university retains additional, but not unlimited, margin to absorb potential future operating challenges. The university benefits from consistently positive operations, adequate balance sheet resources and strong debt service coverage.

TUITION DEPENDENT: Barry is heavily reliant on tuition revenues and has limited pricing flexibility due to strong competition for students and affordability concerns. Net tuition revenues continue to decline.

MISSED ENROLLMENT TARGETS: Barry continues to fall short of enrollment targets in fall 2015. In fall 2014, under-budgeted enrollment drove a significant shortfall in fiscal 2015 gross tuition and fee revenue. The smaller incoming class is partly a strategic attempt to improve student quality and retention but this strategy is unproven.

PRUDENT FISCAL MANAGEMENT: Management continued to mitigate the financial impact of the decline in tuition revenues in fiscal 2015 through conservative budgetary practices and cost controls. New budgeting practices in fiscal 2016 are expected to maintain financial flexibility.

RATING SENSITIVITIES

DETERIORATING OPERATING MARGIN: The rating is sensitive to Barry University's ability to achieve revenue estimates/enrollment goals and generate positive margins. The inability to grow net tuition revenues or make adequate cost adjustments could result in a downgrade.

ENROLLMENT MANAGEMENT: The rating is also sensitive to Barry University's ability to meet its enrollment forecast. Additional enrollment shortfalls to budget and another significant net revenue variance in fiscal 2016 could result in a downgrade.

CREDIT PROFILE

Barry was founded by the Dominican Sisters in 1940 as a women's Catholic college, became co-educational in 1975 and was elevated to university status in 1981. The university is located on 125 acres in Miami Shores, FL and offers more than 100 bachelors, masters and doctoral degrees. In addition, the university manages a law school on a separate, 24-acre campus in Orlando, FL, and offers 25 sites and multiple additional points of delivery throughout the State of Florida, the Bahamas, and the U.S. Virgin Islands.

CHANGING DEMAND PROFILE

Overall, preliminary headcount enrollment in fall 2015 was down 8.4% following a 5.6% decline in fall 2014. The decline is at both the traditional undergraduate and graduate level and includes the non-traditional cohort. Barry fell short of new undergraduate enrollment targets (750), with a total of 734 freshmen and transfers enrolling, after missing targets in fall 2014 and prior years. While the portion of students enrolled was smaller, student quality improved according to management.

The smaller incoming class is partly due to Barry's greater emphasis on recruiting students that can persist both academically and financially. Barry modified its financial aid package which produced fewer applications from students with weaker academic and financial qualifications.

Additionally, management indicated that the state's community colleges, which now offer a 4 year degree, no longer are feeders for Barry but increase the competition for transfer students. Coupled with weakening demographics driving an increase in national competition for students, there is increasing uncertainty around Barry's demand profile and its ability to recruit new students at historical levels.

CONSISTENTLY POSITIVE OPERATIONS

Barry operates in a highly competitive operating environment which does not provide a lot of pricing flexibility. Increasing student institutional aid in recent years and under-budgeted enrollment drove a second consecutive decline in net tuition and fee revenues based on unaudited fiscal 2015 results.

Nonetheless, Barry continues to generate operating surpluses (five year average margin 4.6% (fiscal 2010-14). Actual fiscal 2014 operating results (3.1%) met expectations provided to Fitch (3.0%) in the prior review. Unaudited fiscal 2015 is slightly improved at 3.3% (representing 10 consecutive years of surpluses).

According to management, Barry experienced an estimated $8 million shortfall to the net revenue budget for fiscal 2015, compared to $2.6 million in fiscal 2014, driven by a net tuition and fee miss of about $12.8 million, which was partially offset by a one-time insurance settlement and prudent monitoring of expenses. Fiscal 2015 expenses were $13 million below budget according to management.

The university's ability to continue to post positive operating margins is consistent with Fitch's expectations for a 'BBB' rated private university.

STRONG DEBT PROFILE

Positive operations provided strong coverage of pro forma maximum annual debt service (MADS) of 2.7x (unaudited fiscal 2015). Barry's pro forma MADS burden remains manageable at 3.8%. Barry continues to balance capital needs and self-fund deferred maintenance needs with internal resources, rather than additional debt.

ADEQUATE LIQUIDITY LEVELS

Available funds (defined by Fitch as cash and investments not permanently restricted) of $61.5 million, represent 39% of operating expenses and 77% of total pro forma debt in fiscal 2015 (unaudited). Available funds exclude from investments a $3.9 million beneficial interest in perpetual trust which is permanently restricted. While resources are somewhat low relative to expenses versus other credits rated 'BBB' by Fitch, the university is above the median in this category relative to debt.