OREANDA-NEWS. Fitch Ratings has affirmed the long-term ratings on the following higher education facility revenue bonds issued by the Rhode Island Health and Educational Building Corporation on behalf of the New England Institute of Technology (NEIT or the institution):

--$11,915,000 series 2008 at 'A+';
--$36,920,000 series 2010A at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by all available funds of NEIT and are further secured by a first mortgage lien. In addition, the series 2010 bonds have a cash funded debt service reserve fund.

KEY RATING DRIVERS

SOLID FINANCIAL OPERATIONS: The 'A+' rating reflects NEIT's solid financial profile, evidenced by the consistent generation of positive GAAP-based operating surpluses, strong debt service coverage and healthy levels of unencumbered resources relative to operating expenses and long-term debt. Offsetting factors include historically cyclical enrollment, significant reliance on tuition and fee revenue, limited fundraising and a high debt burden.

CONSERVATIVE MANAGEMENT TEAM: Strong operating results reflect management's conservative budgeting and prudent management of internal resources as evidenced by the ability to generate consistent profitability in operations and maintain its policy of zero endowment reliance.

INCREASED BUT MANAGEABLE DEBT PROFILE: NEIT's debt burden has nearly doubled with the issuance of $60 million of bank placed series 2015 bonds to finance a new student housing project. While NEIT's debt burden is high, Fitch considers it manageable due to NEIT's consistent operating surpluses resulting in adequate coverage levels and abundant balance sheet resources.

RATING SENSITIVITIES

CAMPUS TRANSFORMATION: Increased project costs, additional debt or the inability to generate the necessary demand for student housing related to New England's Institute of Technology's transformation of its main campus into a more traditional, residential-based institution could pressure finances and negatively impact the rating.

VOLATILE ENROLLMENT: As a technical school Fitch believes New England Institute of Technology's financial results are more sensitive to economic cycles. NEIT's inability to manage its enrollment and operating results could pressure the rating.

CREDIT PROFILE

NEIT was founded in 1940 to provide hands-on technical training at a reasonable cost. The institution has three locations in Rhode Island: two in Warwick and the main campus in East Greenwich. NEIT currently offers over 40 professionally and technically focused undergraduate and graduate degrees and online programs.

ENROLLMENT SUBJECT TO VOLATILITY

Headcount enrollment at NEIT has been basically flat over the last two years after growing by 6.2% in fall 2013. Total headcount for fall 2015 was 2,906 compared to 2,910 in fall 2014. The growth in fall 2013 was largely driven by NEIT's investment in new professional programs and completion of a new campus in East Greenwich.

Management believes there is likely to be future enrollment traction as the result of adding a new position in August 2014 - Vice President of Enrollment, and the addition of several new programs in 2015 and 2016 including health care management, health and wellness, rehabilitation sciences and paramedic technology. However, Fitch believes with a large offering of technical courses, enrollment is cyclical with the economy. Economic downturns typically generate a return to the trades (electrical, plumbing, etc.) bolstering enrollment at schools such as NEIT.

In addition, strategic initiatives to grow enrollment by offering a more traditional, residential campus are supported by NEIT's capital improvement plan which includes the construction of student housing on the East Greenwich campus. Currently NEIT provides no student housing.
Construction of the new 400-bed residence facility, which includes expansion of the dining and health facilities, is on time and on budget and is expected to be completed by July 2017.

STRONG OPERATIONS DRIVE RESOURCES

NEIT consistently generates double-digit operating margins; the fiscal 2015 margin was 13.7%. This compares to 14.0% in fiscal 2014 and 15.9% in fiscal 2013. Operations through mid-year fiscal 2016 are ahead of budget. Management expects to close fiscal 2016 with another surplus. Fitch views these results as achievable given conservative management of resources and NEIT's ability to consistently generate strong operating profits, notwithstanding enrollment cycles.

Management has historically budgeted very conservatively - budgeting for deprecation and not drawing on endowment for operations providing financial flexibility. NEIT manages enrollment cyclicality by cutting variable costs; faculty is largely comprised of adjuncts. Overall financial flexibility is viewed favorably by Fitch given the cyclical nature of some of the programs offered.

HEALTHY BALANCE SHEET

Historically strong operating performance has enabled NEIT to maintain its policy of zero endowment reliance and to build a healthy balance sheet. Available funds, defined as cash and investments not permanently restricted, totaled $174 million as of June 30, 2015. Available funds relative to operating expenses ($59.2 million) and current long-term debt ($50.2 million at fiscal year-end June 30, 2015) are very strong at 294% and 347%, respectively. Given NEIT's strong reliance on student generated revenues this provides an important cushion.

With the addition of $60 million of long-term debt in August 2015, available funds to long-term debt remain sound at 158%. Fitch expects NEIT's strong operating performance will continue to drive growth in resources available to cover the increased debt service.

INCREASED DEBT LEVELS REMAINS MANAGEABLE

Inclusive of the 2015 bonds, NEIT's current long-term debt portfolio totals $110.2 million of which 11% are variable rate demand bonds supported by a TD Bank letter of credit, 34% are traditional fixed rate bonds and 55% are bank placed fixed rate bonds. The $60 million series 2015 bank placed bonds are fixed rate which amortized over 27.5 years and have a mandatory put in 15 years. Fitch views NEIT as having sufficient liquidity at this time (AF is $174 million) to cover a put. The series 2015 obligations are on parity with NEIT's outstanding bonds and contain performance covenants consistent with the series 2008 and 2010 bonds.

With the additional $60 million in debt maximum annual debt service (MADS) increases to $6.9 million (in 2022) from $3.8 million. The resulting MADS burden is a high 10.2% of 2015 operating revenues, compared to 5.9% previously. The high debt burden is somewhat offset by NEIT's strong pro forma MADs coverage of 2.7x. Additionally, the housing project is expected to generate net revenues. NEIT's operating margins and MADS coverage levels are significantly stronger than expectations for 'A+' credits rated by Fitch.

Fitch notes that NEIT's declining debt service structure provides additional budget and debt flexibility. While the debt burden is high, Fitch expects it should remain manageable based on NEIT's historically strong operating performance and abundant resources.