Additionally, Fitch affirms its 'F1+' rating on Baylor's
The Rating Outlook is Stable.
The bonds and the university's CP program are unsecured, general obligations of the university.
KEY RATING DRIVERS
STABLE OPERATING PROFILE: Baylor's positive operating performance continues to support the rating, providing an adequate level of financial flexibility, particularly given the university's strong demand profile and enrollment. Both undergraduate and graduate enrollment have grown modestly over the last five years.
ADEQUATE BALANCE SHEET: The university's balance sheet provides an adequate financial cushion. Available funds (AF) ratios remain consistent with the 'A' rating category for Fitch-rated private colleges and universities, although slim for 'A+' rated peers. Baylor, however, is provided with additional financial flexibility by its
PLANNING PARTIALLY MITIGATES HIGH LEVERAGE: Baylor mitigates its very high maximum annual debt service (MADS) burden (35.7% in fiscal 2015) by engaging in long-term financial planning, including internal budgeting to build reserves to help manage its
SUFFICIENT LIQUID RESOURCES: The 'F1+' rating reflects the adequacy of Baylor's internal resources to cover the maximum potential liquidity presented by its taxable CP program. Such resources include cash and highly liquid investments, and exceed Fitch's 1.25x requirement for an 'F1+' rating.
POSITIVE OPERATING MARGINS: Student-generated revenues account for more than two-thirds of
BALANCE SHEET STRENGTH: Significant declines in balance sheet ratios could pressure the rating. However, growth in financial resources over time relative to peer institutions, from a mix of operating surpluses, endowment appreciation and gifts, could have positive rating implications.
SUFFICIENT LIQUID RESOURCES: A downgrade of the university's long-term rating below 'A+', or deterioration of self-liquidity below Fitch's 1.25x requirement for an 'F1+' rating, would lead to a downgrade in Baylor's short-term rating.
Baylor was chartered by the
NO IMMEDIATE RATING EFFECT FROM TITLE IX INCIDENTS
Baylor has recently gone through leadership changes stemming from the review of several Title IX incidents. In
Management reports that Baylor has since added staff to Baylor's Title IX office and is investing in resources for student counseling, campus safety, and university security. Fitch will continue to monitor how the wake of the sexual assault scandal affects future student demand.
Baylor is not currently in a major comprehensive fundraising campaign, but has raised over
SOLID STUDENT DEMAND
Baylor's enrollment and demand trends support the university's operating revenues, which remain favorable. Headcount enrollment has grown consistently since at least fall 2010, reaching 16,263 in fall 2014 and 16,787 in fall 2015. Management reports that fall 2016 full-time equivalent (FTE) enrollment grew to 16,654 from 16,511 in fall 2015 (which was approximately 500 FTEs above fall 2014). After dips in each category in fall 2015, freshman and transfer applications for fall 2016 each increased over the prior year reaching 34,661 and 1,348, respectively.
Fall 2015 freshman selectivity strengthened over fall 2014, with a 43.7% acceptance rate and 24.2% matriculation. Further, Baylor's fall 2015 freshman yield at approximately 3,400 students, compared to a budget of 3,200, is a credit positive. Management maintains that the goal is to allow for 3,200-3,250 entering freshman each year.
Fall 2016 freshman selectivity continued to strengthen over the prior year, with a 39.7% acceptance rate (the lowest level observed since at least fall 2010) and 25.5% matriculation (the highest level observed since at least fall 2010). While management budgeted for 3,250 students in fall 2016, approximately 3,500 students matriculated, indicating strong demand trends persist.
Management reports that as of
POSITIVE OPERATING MARGINS
Baylor's operating margin (including the endowment draw) averaged a positive but slim 2.3% in fiscal years 2011-2015, which contrasts with a stronger 3.7% average margin between fiscal years 2008-2010. However, operating results for the fiscal year ended
Fitch considers Baylor's conservative, long-term financial planning (including a step-down tuition fee increase to address affordability) as a credit positive. Management reports that fiscal 2016 results will be positive, yet not as strong as fiscal 2015 due in part to one-time legal costs incurred.
WEAKENED THOUGH ADEQUATE LIQUIDITY
Baylor's available funds (AF; defined as cash and investments not permanently restricted) decreased in fiscal 2015 by almost 5% to
On an unaudited basis, management reports that AF at
HIGH DEBT LEVERAGE
Outstanding debt at
Current debt service in fiscal 2015 was approximately
Management reports that Baylor has no new debt plans at this time, and expects to retain the size of its authorized
The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover the liquidity demands presented by Baylor's taxable CP program. The program has a maximum authorization of
Baylor does not maintain any self-liquidity exposure to variable rate debt instruments aside from its CP program. At present, approximately
Additional information is available at 'www.fitchratings.com'.
Fitch Internal Liquidity Worksheet (pub.
Revenue-Supported Rating Criteria (pub.
Dodd-Frank Rating Information Disclosure Form
Source: Fitch Ratings