OREANDA-NEWS. Fitch Ratings has affirmed its 'BBB-' rating on the following series of bonds issued on behalf of Touro College (NY) and certain affiliated entities (Touro, or the college):

--$56 million Dormitory Authority of the State of New York (DASNY) revenue bonds, series 2014A (Touro College Obligated Group);
--$36.4 million DASNY revenue bonds, series 2014B (federally taxable) (Touro College Obligated Group);
--$24.2 million City of Henderson Public Improvement Trust (HPIT) revenue bonds, series 2014A (Touro University Nevada);
--$11.3 million HPIT revenue bonds, series 2014B (taxable) (Touro University Nevada);
--$17.2 million California Municipal Finance Authority revenue bonds (Touro University), series 2014.

The Rating Outlook is Stable.

SECURITY

General, joint and several obligation of the Touro College Obligated Group (OG) pursuant to a master trust indenture (MTI) and payable from the gross revenues of the OG. Gross revenues include all tuition, fees, receipts, revenues, income and other moneys received by or on behalf of the OG unless otherwise restricted. Additional bondholder protections include mortgages on various OG-owned properties and cash-funded debt service reserves calculated separately for each series of bonds. The OG represented about 70.5% of Touro's fiscal 2015 consolidated unrestricted operating revenue.

KEY RATING DRIVERS

MISSION-DRIVEN INSTITUTION: Touro College is a mission-driven institution with a track record of enrollment growth (despite recent declines in certain undergraduate and graduate programs such as law) and successfully opening new programs and schools that are fueled by geographic and student diversity.

HEALTHY OG DEMAND TRENDS: Consistent growth of student demand for the OG's existing program offerings over the past five years, primarily in medicine and the health sciences, partially mitigates cyclical growth and recent declines in other Touro programs outside of the OG.

FINANCIAL PROFILE OF OG: The OG has a recent track record of generating operating surpluses, moderately low debt burden, and solid debt service coverage. Offsetting factors include a thinning financial cushion in fiscal 2015, a limited operating history, as well as the inclusion of new campuses and programs that require enrollment growth, various start-up costs, and accreditation approvals.

SUPPORT OF NON-OBLIGATED GROUP OPERATIONS: As part of Touro's mission, the OG provides annual financial assistance to non-OG operations. While not legally subordinate, this assistance is expected to be distributed subsequent to the OG satisfying debt service. Therefore, Fitch places emphasis on the consolidated entity, which maintains limited financial flexibility.

RATING SENSITIVITIES

IMPROVED FINANCIAL PERFORMANCE: The current 'BBB-' rating for Touro College is predicated on operations improving in fiscal 2016, largely based on the opening of the Middletown campus. Without this level of improvement, Touro's rating and/or Outlook may be negatively pressured.

INCREASED LEVERAGE: Any future increase in financial leverage, without commensurate growth in available financial resources, could negatively pressure Touro College's rating.

AGGRESSIVE GROWTH STRATEGY: Touro's traditionally aggressive growth strategy will likely result in additional capital and borrowing needs as it continues to expand. Continued successful integration of these new programs, coupled with achievement of annual enrollment targets, particularly within the obligated group's schools and programs, is necessary for Touro to maintain its rating level.

CREDIT PROFILE

Founded in New York City in 1970, Touro is a private, religiously affiliated institution whose initial mission was to serve the Jewish community through higher education and career development, primarily centered on the health sciences. Since its founding, it has embarked on an aggressive growth strategy, significantly expanding program offerings and broadening its mission to serve all students.

While originally founded with a religiously-driven mission, Touro also views its mission as workforce development and is spread primarily throughout the New York metropolitan area, as well as owning campuses in Vallejo, CA and Henderson, NV. It provides undergraduate bachelor and associate degree programs; graduate programs; and professional schools.

In June 2015, Touro established a membership substitution agreement with Illinois-based Hebrew Theological College in order to help expand its mission footprint. Moreover, as part of its efforts to expand programs within health sciences, Touro expects to open its dental school at NYMC in July 2016, with a projected enrollment of approximately 110 students per year of this four-year program.

The OG was formed in 2014 and includes Touro College, Touro University (TU), Touro University Nevada (TUN), and NYMC. Regarding Touro College's participation in the OG, only the revenues derived from its College of Osteopathic Medicine (TouroCOM; Harlem and Middletown campuses), College of Pharmacy, and School of Health Sciences are pledged under the MTI. Revenue from the new dental school will also be included, as it will be included in the OG.

SOUND STUDENT DEMAND

Touro's expansion has led to steady enrollment growth over the past few decades; and, overall headcount enrollment grew 3.2% to 18,676 across all Touro schools and programs in fall 2015 following four consecutive years of decline. Moreover, full-time equivalent (FTE) enrollment grew 3.8% from fall 2014 to 16,013 in fall 2015, representing the highest institution-wide FTE enrollment level since at least fall 2009.

Enrollment gains for fall 2015 were made at the undergraduate level (e.g. Lander Colleges headcount increased 2.9%) as well as across various graduate institutions, including a 17% increase at TouroCOM and an 11.8% increase at the graduate school of education. The successful opening and accreditation of the new Middletown, NY campus in August 2014 (which is already cash flow positive as of February 2016) helped continue to spur TouroCOM growth during fiscal 2015 and is projected to continue in fiscal 2016 based on fall 2015 enrollment levels. Declining demand for law programs is consistent with trends still being observed nationwide. These declines, however, were partially offset by the aforementioned growth at other Touro institutions.

Importantly, Fitch notes that enrollment within the OG, where the pledged revenues securing the series 2014 bonds are derived, continued to grow. Fall 2015 enrollment for the OG totaled 7,373, up 5.4% from fall 2014, and up 27.6% since fall 2009, reflecting increased demand across various programs. Student selectivity varies among Touro's different schools and programs. The medical schools remain the most selective, with most of the medical and pharmacy schools accepting about 10% or less of applicants, reflecting the continued demand for various medical and health science-related professions, and management's strategy of focusing on job placement and workforce development. Touro aims to keep undergraduate tuition affordable, which is made possible by the majority of its enterprise consisting of mostly full-paying graduate and professional students.

WEAKENED THOUGH IMPROVING FINANCIAL PERFORMANCE

Typical of many private colleges and universities, Touro has limited revenue diversity. Tuition and fees make up the majority of revenues (80.4% in fiscal 2015), followed by patient service revenues (8.3%) and grants and contracts (6.3%). The latter two are mostly derived from NYMC via faculty physician practices and modest research activity.

Due to enrollment growth and a largely graduate student population that results in minimal overall tuition discounting (8.8% in fiscal 2015), Touro's net tuition and fee revenue grew measurably (31% from fiscal years 2011-2015, or a healthy average annual growth rate of 7.8%). The OG's revenue mix is similar to that of the consolidated entity. Tuition discounting is an even lower 2.7% at the OG level, as the OG is comprised primarily of graduate programs.

On a consolidated basis, Touro's operating margin has been somewhat volatile as the organization continued to grow and add programs. After three consecutive years of breakeven performance (fiscal 2012-2014), Touro (on a consolidated basis) experienced a 3.5% operating deficit in fiscal 2015 due to start-up costs associated with the TouroCOM Middletown campus, costs associated with the installation of a new enterprise system, as well as the payment of overlapping rents as Touro is relocating space within New York City. At the OG level, margins were strong at 11.6% and 12.8% in fiscal years 2014 and 2013, respectively; yet, the OG registered a 3.8% operating margin in fiscal 2015 after deducting the OG's proportionate share of central administrative expenses. Still, while the stronger OG level is noteworthy, it is tempered by a limited track record of five years, only four of which include a full cycle with NYMC's operations.

Management reported that Touro's consolidated fiscal 2016 budget forecasts exhibit stronger operating results than that of fiscal 2015, in part due to the increased fall 2015 enrollment levels as well as realizing the revenue-generating effects of the investment made towards the Middletown campus. Touro expects most of its programs to be self-supporting, with the exception of its two Yeshivas and Lander Colleges, which are subsidized by the rest of its operations.

LIMITED BALANCE SHEET LIQUIDITY

On a consolidated basis, Touro's balance sheet cushion remains thin. Available funds (AF), defined by Fitch as cash and investments less permanently restricted net assets, totaled $94.1 million as of June 30, 2015, covering fiscal 2015 operating expenses ($463 million) and outstanding debt ($378.7 million) by a low 20.3% and 24.8%, respectively. The latter metrics represent a decline from the prior year's level during which AF covered operating expenses and outstanding debt by 26.9% and 34.4%, respectively. Touro's investment portfolio remains fairly conservative, with moderate exposure to alternative asset classes.

At the OG level, balance sheet liquidity is slightly stronger. AF of $69.9 million covered fiscal 2015 operating expenses ($303.5 million) and outstanding debt ($194.4 million) by 23% and 35.9%, respectively, which Fitch still considers as adequate, albeit weakened from one year prior, for the rating level. Debt includes revenue bonds, notes payable, capital leases and non-cancellable operating leases.

MANAGEABLE DEBT BURDEN

The series 2014 bonds are fixed-rate debt with generally level debt service through final maturity in fiscal 2044. On a consolidated basis, Touro's total maximum annual debt service (MADS) equates to about $33.7 million, which includes debt service on revenue bonds, notes and mortgages payable, capital leases, and non-cancellable operating lease commitments. MADS for the OG totals approximately $10.4 million, occurring in fiscal 2018.

On a consolidated basis, Touro's debt burden remains moderately high, with total MADS consuming 7.5% of fiscal 2015 operating revenues. Institutional MADS coverage from operations was thin at 0.7x in fiscal 2015, compared to 0.9x in fiscal 2014. Leverage metrics are much stronger at the OG level, with a moderately low 3.3% MADS burden and healthy institutional coverage of 3.1x from net available income of about $32 million.

Upon depletion of the $21.5 million construction funds earmarked for the development of the dental school, Fitch assumes that Touro may have additional debt needs over time as it continues to grow. Touro may issue debt under the MTI for both OG and non-OG purposes, which Fitch views as a credit negative since it could potentially dilute the strength of the OG. However, any debt issued under the MTI for non-OG purposes is expected to bring with it payments from the non-OG beneficiaries of any debt-financed projects to offset the additional debt service imposed on the OG. Various financial covenants under the MTI are also expected to prevent Touro and the OG from significantly over-leveraging.