OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following bonds issued by the A.S.U. Educational Building Corporation, MS (EBC) on behalf of Alcorn State University, MS:

--Approximately $41.315 million revenue refunding bonds, series 2016 (Alcorn State University [ASU]) facilities refinancing project).

The bonds are expected to price via negotiation the week of Feb. 29. Series 2016 bond proceeds will refund or defease all or part of the ASU Building Corporation's series 2009A revenue bonds.

The Rating Outlook is Stable.

SECURITY

EBC bonds are payable from designated revenues of the eight academic institutions overseen by the Mississippi State Institutions of Higher Learning (IHL), pursuant to a lease agreement. Designated revenues include net tuition, fees, and auxiliary revenues; sales and services; other operating revenues; state operating appropriations; and unrestricted net assets. IHL's obligation under the lease is absolute and unconditional. There is no debt service reserve fund for the series 2016 bonds.

KEY RATING DRIVERS

SOUND SYSTEM FINANCIAL OPERATIONS: The 'AA' rating reflects IHL's sound and stable financial profile, as evidenced by consistently breakeven-to-positive GAAP-based operating performance, a satisfactory level of available funds relative to operating expenses and debt, a diverse revenue base, and state operating and capital support (state of Mississippi rated 'AA+'/ Stable Outlook).

INTEGRAL STATE EDUCATION ROLE: The eight IHL member institutions benefit from their role of providing all four-year public higher education and research services in the state. Additionally, the University of Mississippi Medical Center (UMMC) is a major healthcare provider.

MANAGEABLE DEBT BURDEN: The system's manageable pro forma maximum annual debt service (MADS) burden is a moderate 3.8% of fiscal 2015 unrestricted operating revenues. Net operating income regularly provides solid pro forma MADS coverage averaging more than 2.0x since fiscal 2010, including 2.4x based on fiscal 2015 operations. Ongoing capital plans for member institutions appear manageable.

RATING SENSITIVITIES

WEAKENED FINANCIAL PROFILE: Material erosion in Mississippi State Institutions of Higher Learning (IHL) system-wide operating performance or balance sheet ratios, which is not anticipated at this time, could pressure the rating. IHL benefits from relatively system-wide stable enrollment and a prominent state-wide education role.

CREDIT PROFILE

Founded in 1944, IHL governs the state's eight four-year higher education institutions: Alcorn State University, Delta State University, Jackson State University, Mississippi State University (MSU), Mississippi University for Women, Mississippi Valley State University (MVSU), University of Mississippi (UM), and University of Southern Mississippi (USM). It also includes UMMC, which is part of UM.

Fitch views the system's historical stability as providing some flexibility to manage enrollment and demographic cycles. Rapid system enrollment growth since 2008 has leveled off in recent years due to lower community college enrollment and fewer transfer students, as well as flat to declining numbers of high school graduates in Mississippi. Fitch expects IHL to manage effectively through the system's periodic enrollment cycles.

Headcount for fall 2015 for all IHL member institutions was 81,024, up 1.7% from 79,704 in fall 2014. IHL projects generally stable enrollment in the next several years, supported by continued out-of-state recruitment (about 27% of system headcount is from out of state, principally at UM and MSU), and growth in online learning.

UM is IHL's largest member institution (about 23,838 headcount in fall 2015, about 29% of the IHL system), followed by MSU (about 20,873 or 26%) and USM (about 14,551 or 18%). Enrollment for the other five members ranged from 2,309 to 9,802. The UM Medical Center receives state funding independently, but is part of UM. Of the eight system institutions, UM has realized the most enrollment growth in recent years, up nearly 22% between fall 2010 and 2015.

Founded in 1871, ASU is the oldest public historically black land-grant institution in the U.S., and the second oldest member institution of IHL. The 1,700 acre campus is located about 80 miles south of Jackson, MS, near the town of Lorman. Bachelors and master's degrees are offered by ASU's five schools and departments: Agriculture, Research, Extension and Applied Sciences; School of Arts and Sciences; School of Business; School of Education and Psychology; and the School of Nursing. Enrollment at fall 2015 was 3,518, down from about 4,000 in fall 2011.

SOUND SYSTEM OPERATIONS

IHL's balanced operating performance supports the 'AA' rating. IHL consistently generates breakeven-to-positive GAAP-based operating results, including 3.6% in fiscal 2015. The system has managed effectively through several years (fiscals 2010-2013) during declines in state operating appropriations and federal grants and contracts.

Positively, state appropriations for the entire system increased by 3.4% in fiscal 2016, 3.35% in fiscal 2015, and 5.74% in fiscal 2014. Fitch views IHL as having good revenue diversity. In fiscal 2015, operating revenues included operating appropriations (22%), healthcare operations (31%), grants and contracts (11.8%, including federal scholarship programs); and student/auxiliary fees (24%). This revenue mix is not expected to change materially.

ADEQUATE SYSTEM BALANCE SHEET

The system's balance sheet ratios remain consistent with the 'AA' rating category. Available funds (AF), defined by Fitch as cash and investments less certain restricted net assets, totaled $1.37 billion at June 30, 2015. AF represented an adequate 43% of operating expenses and a stronger 91% of pro forma debt (about $1.5 billion).

Fitch's AF calculation excludes endowment held in separate foundations. At the end of fiscal 2015, foundation net assets benefiting UM, MSU and USM totaled $1 billion, of which the majority was restricted.

MANAGEABLE SYSTEM DEBT BURDEN

System debt in October 2015 was about $1.5 billion, including bonds, notes, non-cancellable operating leases, and capital leases. MADS of approximately $125 million represented a moderate 3.8% of fiscal 2015 operating revenues.

The system's debt portfolio is conservatively structured, with front-loaded amortization and mostly fixed-rate debt. Institutional MADS coverage is regularly around 2x, a solid level. MADS is 2.4x based on fiscal 2015 operations. Future debt plans appear manageable.

For more information about IHL, please see Fitch's report on the Mississippi State Institutions of Higher Learning, S.M. Educational Building Corporation (University of Southern Mississippi) Series 2016, dated Jan. 14, 2016.