By Jeff Murphy,
July 3, 2018
WARRENSBURG, MO – In its annual review, Standard & Poor’s (S&P) Global ratings affirmed
the University of Central Missouri’s bond rating of “A+” for all currently outstanding
bonds and for two issues planned this fall. Although UCM’s dedication to sound financial
operations contributed to its ability to retain the same overall letter rating from
Standard & Poor’s (S&P) Global Ratings for the third consecutive review, S&P changed
its outlook rating to reflect current and future financial pressure on the university.
S&P notified UCM that it is assigning its “A+” long-term rating to the Missouri Health
and Educational Facilities Authority’s (MOHEFA) series 2018A revenue bonds and 2018B
refunding bonds. It also affirmed the same rating on the 2013B-2, 2013C-2, and 2012A
educational facilities revenue bonds. The outlook on all of these bonds, however,
was changed to “negative” from “stable.”
“We assessed UCM’s enterprise profile as strong characterized by a historically respectable
demand profile with improving selectivity, and reasonable matriculation. We assessed
its financial profile as solid, with consistently positive operations on a cash basis,
good available resources, and a reasonable debt burden,” S&P noted in its written
rationale. “Combined, we believe these credit factors lead to an indicative stand-alone
profile of ‘a+’ and final rating of ‘A+’.”
Rationale provided by S&P attributes the negative outlook to the rating organization’s
view on enrollment declines which took place in Fiscal Years 2016 and 2017 after several
years of growth, and expectations for continued enrollment pressure for fall 2018.
This is in addition to an operating deficit generated in Fiscal Year 2017, due to
reduced state funding; a drop in international graduate students over the past two
years; and expectations for another deficit for FY 2018.
S&P Global Ratings provide a forward-looking opinion about a borrower’s credit worthiness
and ability to repay debt using a letter-grade system. “AAA” is the best rating that
can be given for a borrower’s ability to repay long-term bonds. A long-term credit
issue rating of “A” means that the organization being rated is more susceptible to
adverse effects of changes in circumstances and economic conditions than obligations
in higher rated categories, but the borrower’s ability to meet its financial commitments
is still strong.
A “negative’ outlook indicates a possibility that a rating could be lowered if there
is a decline in enrollment and the university’s financial operations also are adversely
affected. If the university maintains its operational resource levels and enrollment
challenges dissipate, the outlook over the next two years could return to “stable.”
“We have faced significant financial hurdles, but the ability to continue to maintain
a final rating of a stand-alone profile of ‘a+’ and a final rating of ‘A+’ for the
second consecutive year is a direct reflection of our campus-wide commitment to strong
management of our capital financing for projects that benefit our students. It also
demonstrates our good stewardship with limited financial resources,” said UCM President
Chuck Ambrose. “As we enter Fiscal Year 2019, we continue to work strategically to
ensure we’re meeting our priorities in the areas of academic performance, student
success and sustainability. We are confident that we are heading in the right direction,
knowing our success impacts on our future S&P rating and our ability to secure financing
for future projects that will benefit our students.”
Bonds that were rated by S&P were used for various projects to improve the campus
learning-living environment. The 2013B-2 bonds were issued for improvements at Audrey
Walton Stadium at Vernon Kennedy Field for extensive renovation on the lower level
of the stadium. Series 2013C-2 educational facilities revenue bonds made possible
construction of The Crossing – South at Holden, the university’s first retail-student
housing project, and the 2012A revenue bonds, which were retired in October 2017,
were issued to refinance the series 2002 University Housing system energy savings
and library bonds. Additionally, Series 2018A revenue bonds will finance improvements
to the Elliott Student Union, including a new south entrance and a new auditorium.
Series 2018B bonds will be used to refund series 2013B.
S&P noted that its rating of UCM’s educational facilities revenue bonds reflects its
view of the university including factors such as historically sound financial operations,
with the university typically producing operating surpluses on a cash basis; healthy
available resources, with adjusted unrestricted net assets equal to 40 percent of
adjusted operating expenses and 92.8 percent pro forma debt; and no additional debt
plans during the outlook period.
According to S&P Global Ratings, UCM’s total pro forma debt equaled $99.5 million
as of June 30, 2017. This included Series 2018A revenue bonds of $7.6 million in new
money and the series 2018B-2 $3.8 million in refunding bonds, $65.9 million of revenue
bonds and a $22.9 million energy savings capital lease issued in April 2009 for deferred
maintenance to buildings on the main campus.
“The university has a front-loaded debt structure, which amortizes over 20 years,
that, in our view, somewhat mitigates its above-average debt burden,” S&P noted in
its rationale. “All of UCM's debt is fixed-rate. Management reports no other additional
debt plans without at least commensurate growth in available resources during our
outlook period.”
