|[August 22, 2013]
Fitch Affirms Midwestern University, AZ at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the 'A+' rating on the following bonds including
the underlying rating on the series 2011 adjustable rate demand revenue
bonds issued by the Industrial Development Authority of the City of
Glendale, Arizona (the authority) on behalf of Midwestern University
--Approximately $49 million series 2011;
--Approximately $159.6 million series 2010.
The Rating Outlook is Stable.
The bonds are a general obligation of the Obligated Group, which
currently consists only of MWU. In addition, MWU has pledged a security
interest in its unrestricted receivables.
KEY RATING DRIVERS
RATING AFFIRMED: The 'A+' rating reflects MWU's success within its niche
program offerings in health sciences, which has grown over the years as
the university has continued to add new programs while growing existing
ones, both of which are underpinned by the success of a long standing
management team's ability to implement strategic initiatives. The
university's consistently strong operating margins, debt service
coverage and liquidity levels are demonstrative of a conservative fiscal
plan founded on strong student demand.
HEALTHY OPERATING MARGINS: The management team's budgeting and planning
processes have enabled the university to consistently generate double
digit operations margins since 2005, fueled largely by strong demand for
healthcare sciences. Due to MWU's strategic diversification and new
program additions, the university is likely better positioned to meet
increased demand to meet growing future healthcare needs.
STABLE ENROLLMENT TRENDS: MWU is very selective in its admissions
process and enjoys strong demand with rising applications. For fall of
2012, the university received 9,969 applications for the colleges of
osteopathic medicine; the acceptance rates for the Chicago College of
Osteopathic Medicine and Arizona College of Osteopathic Medicine were
7.8% and 14.6%, respectively.
DEBT BURDEN MODERATELY HIGH: The university's 7.5% MADS debt burden
remains moderately high but manageable. MWU has demonstrated strong
coverage of total pro forma debt, which includes a planned $30 million
issuance in fall 2013, at more than 4 times (x).
BALANCED OPERATIONS WILL MAINTAIN RATING: MWU's ability to achieve
historically strong operating margin levels while absorbing new programs
and additional debt will be key in maintaining the current rating.
Midwestern University is a not-for-profit corporation, providing
primarily graduate education in the health sciences. The university is
comprised of two campuses, offering programs that meet the needs of
their respective markets. The Downers Grove (metropolitan Chicago area)
campus is comprised of 117 acres; four colleges are operated on this
campus - Chicago College of Osteopathic Medicine, Chicago College of
Pharmacy, College of Health Sciences, and College of Dental Medicine -
Illinois. The Glendale (metropolitan Phoenix) campus encompasses
approximately 150 acres and houses the Arizona College of Osteopathic
Medicine, the Colleges of Health Sciences, the College of Pharmacy
Glendale, the College of Dental Medicine - Arizona, College of
Veterinary Medicine and the College of Optometry-Glendale.
STABLE OPERATING PERFORMANCE
MWU's history of strong operations continues with fiscal 2012 generating
a margin of 26.1% and unaudited fiscal 2013 results indicating a similar
margin. These margins indicate healthy operating performance, year over
year, with expanding program offerings, yielding good student demand and
revenue growth. However, MWU continues to be highly reliant on student
generated tuition and fees, accounting for approximately 87% of
operations in 2012.
POSITIVE ENROLLMENT TRENDS
Demand for the university's programs remains stable. Applications have
grown year over year between both campuses while selectivity has
increased. The total applications received for the Glendale campus for
fall 2013 grew 6.3% from fall of 2012 to 14,158 while fall 2013
applications to the Downers Grove campus increased by 14.2% to 16,278.
The highest acceptance rate between both campuses was 13.5% with the
lowest matriculation rate above 43%. Fitch view MWU's market position
favorably and expects demand will continue to grow both as a function of
limited class size and growing interest in the healthcare professions.
In 2012, available funds, Fitch defined as cash and investments not
permanently restricted, grew to $300.5 million up from $219.4 million in
fiscal 2010. This growth is primarily due to the continued generation of
healthy surpluses. Available funds equaled 151.8% of operating expenses
and 98.9% of debt. Not reflected in the ratio is approximately $30
million of additional debt that is expected to be issued in fall of
2013. On an unaudited basis, fiscal 2013 results include available funds
of $326 million, which constitute 147% of operating expenses and 100% of
total pro forma debt. These ratios are adequate for the rating category,
and Fitch anticipates that management's prudent budgeting and planning
will enable MWU to continue to generate strong operating margins and
continue to add to balance sheet resources over time.
MANAGEABLE DEBT PORTFOLIO
MWU's debt burden is moderately high, averaging 6.1% over the past six
years. The MADS burden is still higher at 8.7% of fiscal 2012
unrestricted operating revenue. Concern over these high levels is
mitigated somewhat by strong debt service coverage. MADS coverage from
net available income was 4.1x in fiscal 2012 and averaged 3.3x over the
past six years. While no new debt was added since calendar 2011, the
university expects to add $30 million in debt by the end of year. Fitch
expects that MWU will demonstrate revenue growth commensurate with the
incurrence of additional debt as it has done historically.
MWU has $296 million of debt currently outstanding. Of this debt,
roughly $76 million is variable rate and hedged via swap agreements with
RBC. The earliest of these contracts expire in December of 2017. The
variable rate debt is supported by letters of credit from JPMorgan
Chase, which expire in June 2016. Fitch is comfortable with the debt mix
of the university and considers the management team appropriately
prepared to manage the ongoing debt needs of the two campuses.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria', May 24, 2012;
--'Fitch Assigns Midwestern University Series 2011 Bonds 'A+'; Outlook
Stable', Sept. 13, 2011.
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
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