[August 20, 2014]

Fitch Affirms Wagner College, NY's Revs at 'BBB-'; Outlook Stable

Fitch Ratings has affirmed the 'BBB-'rating on $12.7 million Build NYC Resource Corporation revenue bonds, series 2012, issued on behalf of Wagner College.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of gross receipts of the college, supported by a mortgage on all campus property. The series 2012 bonds provided for a cash-funded debt service reserve in the amount of $1.27 million.

KEY RATING DRIVERS

INVESTMENT-GRADE CHARACTERISTICS: The 'BBB-' rating reflects Wagner's historically balanced operating performance, adequate annual coverage of debt service, and solid balance sheet resource levels consistent with an investment grade rating. Credit risks include high exposure to variable-rate debt, a recent softening in enrollment, and a high debt burden.

ENROLLMENT-DRIVEN OPERATIONS: Wagner's operating performance remains heavily reliant on student-generated revenues and stable enrollment. The college has developed undergraduate and graduate degree programs to manage the sometimes cyclical nature of programmatic demand.

DEBT STRUCTURE HEIGHTENS RISK: the College's exposure to variable-rate debt (about 81%) and the attendant risks is very high, particularly given its limited financial flexibility. The college expects to convert its variable rate debt to fixed rate during the 2014 calendar year, which action Fitch views positively.

RATING SENSITIVITIES

FAILURE TO STABILIZE ENROLLMENT: An inability to stabilize enrollment, and grow net tuition could result in a negative rating action.

MAINTAIN OPERATING MARGINS: Failure to maintain break-even operating performance and generate MADS coverage would lead to negative rating action.

LIMITED DEBT CAPACITY: Issuance of new debt without a commensurate increase in resources would negatively pressure the rating.

CREDIT PROFILE

Wagner College was founded in 1883, and has been located on its Staten Island, New York, campus since 1918. Full-time equivalent enrollment was 2,111 for fall 2013, up 1%, of which about 84% were undergraduates. The campus provides a residential college environment, and most undergraduate students attend on a full-time basis and live on the college's 105-acre campus. The largest graduate programs include education, business and nursing.

HISTORICALLY BALANCED FINANCIAL PERFORMANCE

The 'BBB-' rating is supported by Wagner's historically balanced financial performance. Margins remained at breakeven in fiscal 2013, a trend seen in the last three fiscal years. The college had generated stronger margins previously. Fiscal 2013 results continued to be pressured by tuition discounting, although net tuition revenue increased 3% notwithstanding. College officials report that operations for the fiscal year ending August 31, 2014 are balanced on a budgetary basis, and are expected to be similar to fiscal 2013. Expense containment actions continue. Fitch views Wagner's conservatie management practices favorably.

ENROLLMENT DRIVES OPERATIONS

Annual operations are primarily funded from student-generated revenues, which provided nearly 86% of fiscal 2013 operating revenues. Because of the close link with enrollment and in recognition of softening in full-time equivalent enrollment over the past five enrollment cycles, management initiated a web-based advertising strategy to improve and expand the college's brand and subsequently enhance demand. Further, the college has expanded programs catering to students seeking second undergraduate or graduate degrees in fields with high levels of professional demand such as nursing and business. These and other efforts to stabilize enrollment appear to be successful to date, but Fitch notes the college operates in a highly competitive region.

HIGH DEBT LEVERAGE

Wagner has a high debt burden. Current MADS of $6.3 million occurs in 2016, and represented 9.0% of fiscal 2013 operating revenues. Net income available for debt service in fiscal 2013 provided an improved 1.4x current debt service coverage (up from 1.3x in fiscal 2012), but MADS coverage was only 0.9x (improved from 0.8x in fiscal 2012). Annual debt service will likely increase somewhat when the college completes its planned conversion to fixed rate from variable rate debt, possibly in fiscal 2015. Management does not expect principal amortization to change. Fitch anticipates ongoing management actions to increase operating margins, contain expenses, and maintain MADS coverage.

Wagner's debt portfolio currently includes substantial exposure to variable-rate debt at a level not consistent with the 'BBB' rating category. Outstanding bonded debt at Aug. 31, 2013 was $72 million (excluding some notes and leases), of which about 81% is VRDBs or variable rate bank term loans. These bonds all are amortizing principal, which is a positive factor. Fitch considers the college's plan to restructure its variable-rate debt in calendar 2014 as an important offset to the risks posed by the debt structure. The college reports no new debt plans, and at this time expects to fund raise for capital projects. Fitch believes that issuance of debt for new capital projects could negatively pressure the rating or outlook.

SOLID BALANCE SHEET FOR RATING CATEGORY

A sufficient balance sheet also supports Wagner's investment-grade rating. Available funds (defined by Fitch as cash and investments not permanently restricted) has increased nominally in each of the last five fiscal years. Available funds were $48.7 million in fiscal 2013, equal to 70.7% of outstanding debt ($74 million, including capital and operating leases) and 65.7% of operating revenues ($69.6 million). Fitch considers these ratios consistent with an investment grade institution.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Fitch affirms Wagner College, NY's Revs at 'BBB-'; Outlook Stable (Aug. 22, 2013);

--'U.S. College and University Rating Criteria' (May 2014).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=854794

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