December 12, 2012
Fitch Ratings Improve for the Texas Tech University System
The Texas Tech University System receives some of the highest financial ratings from Fitch Ratings.
Written by Dailey Fuller
Officials at the Texas Tech University System (TTUS) announced today (Dec. 12) that its Fitch Ratings have been upgraded to 'AA+' from 'AA' on approximately $554.9 million of revenue financing system (RFS) refunding and improvement bonds.
“This is one of the best ratings from Fitch we can receive,” said Jim Brunjes, chief financial officer for TTUS. “The CFOs at each of our institutions work attentively every day toward these objectives, and they are to be commended individually and as a strong financial team for the Texas Tech University System.”
In addition, Fitch affirms the 'F1+' rating on $150 million tax-exempt and taxable commercial paper (CP) notes. The ‘F1+’ rating is the highest possible rating on current short-term debt.
Both ratings demonstrate TTUS’s strong capability to meet its financial responsibilities. In December 2011, the Board of Regents authorized the issuance of Tuition Revenue Bonds (TRB) and RFS bonds. This issuance was released in February 2012.
Provided below are multiple key rating drivers and Fitch’s evaluation on TTUS’s performance.
KEY RATING DRIVERS
Overall Strengthening Merits Upgrade:
The upgrade to 'AA+' reflects the system's consistently strong operational performance, growing balance sheet resources and Texas Tech University’s (TTU) recently elevated status to a 'Tier 1' research institution, making it a beneficiary of the National Research University Fund (NRUF), a state fund established to sponsor research growth among public institutions in Texas.
Upward Enrollment Trajectory:
Enhanced research funding and status are expected to further bolster the already increasing full-time equivalent (FTE) enrollment throughout the TTUS, which provides consistency in the system's largest single revenue stream (student-generated revenues).
Conservative, Manageable Debt Burden:
TTUS's current debt burden is manageable, based on a conservative, fixed rate structure, moderate additional debt plans and healthy coverage provided by net operating income.
Sufficient Liquid Resources:
The 'F1+' rating is based on TTUS's ability to cover the maximum potential liquidity demands presented by its CP program by at least 1.25 times from internal resources.
Credit Profile:
The upgrade to 'AA+' from 'AA' is indicative of consistently positive operating performance, which has increased the system's overall financial flexibility. Over the last five years, TTUS's operating margin has averaged 6.7 percent, never dropping below break-even despite a pressured state appropriations environment and turbulent financial markets. This resilience to external influences is consistent with Fitch's expectation for a 'AA+' rated public university.
Further, TTUS's operating health has helped bolster its financial resource base to a level consistent with the 'AA+' rating. Available funds (defined by Fitch as cash and investments not permanently restricted) grew 18.3 percent from FY 2008 to FY 2012, reaching a high of $751.5 million in FY 2012. Available funds represent 52.6 percent of FY 2012 operating expenses ($1.4 billion) and 125.6 percent of total outstanding debt ($598.5 million). TTUS's maximum annual debt service obligation ($56.3 million due in 2014) representing a modest 3.7 percent of FY 2012 operating revenues and covered a healthy 4.3 times by net operating income.
A strengthening enrollment profile has supported growth in the system's financial flexibility.
Between fall 2008 and fall 2012, FTE enrollment has grown to 38,764 students (19.2 percent) system-wide. Each of the three institutions has experienced substantial growth, with Texas Tech
University Health Sciences Center (TTUHSC) growing at a rapid average of 10.8 percent per year as it ramps up to full capacity. Growth is more moderate at TTU and Angelo State University (ASU), with average annual growth of 4.1 percent and 2.5 percent, respectively, consistent with Fitch's expectations for a mature institution.
Fitch views further growth projections as achievable given TTUS's comparatively low cost and ascending reputation. Compared to other Big 12 Conference institutions, TTU's tuition is below average with limited increases planned for the near term. In addition, as of May 2012, TTU was confirmed as a 'Tier 1' research institution, qualifying as an annual beneficiary of research funding from the NRUF.
TTU is presently one of only two institutions to have been granted eligibility for the additional research funding. The prestige attached to the confirmation is expected to further strengthen demand for TTUS's academic offerings.
TTU was originally established in 1923 as Texas Technological College. In 1999, the Texas Legislature established the system by aligning TTU and TTUHSC under one organization. In 2007, as a result of further state legislation, ASU, a former member of the Texas State University system, became the third member of TTUS. In total, component institutions of the system enrolled 38,764 FTE students in fall 2012.