Fitch Upgrades Texas Tech University System, TX Revs to 'AA+'; Outlook
Revised to Stable
NEW YORK -- December 05, 2012
Fitch Ratings has upgraded the rating, to 'AA+' from 'AA', on approximately
$554.9 million of revenue financing system (RFS) refunding and improvement
bonds issued by the Board of Regents of Texas Tech University System (TTUS, or
In addition, Fitch affirms the 'F1+' rating on $150 million tax-exempt and
taxable commercial paper (CP) notes.
The Rating Outlook is Revised to Stable from Positive.
RFS debt, including notes issued under the CP program, is secured by all
available funds of the system.
KEY RATING DRIVERS
OVERALL STRENGTHENING MERITS UPGRADE: The upgrade to 'AA+' reflects the
system's consistently strong operational performance, growing balance sheet
resources and recently elevated status to a 'Tier 1' research institution,
making TTUS a beneficiary of the National Research University Fund (NRUF), a
state fund established to sponsor research growth among public institutions in
UPWARD ENROLLMENT TRAJECTORY: Enhanced research funding and status are
expected to further bolster the already increasing full-time equivalent (FTE)
enrollment at 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 1.25x from internal resources.
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%, 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
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% from
fiscal 2008 - fiscal 2012, reaching a high of $751.5 million in fiscal 2012.
Available funds represent 52.6% of fiscal 2012 operating expenses ($1.4
billion) and 125.6% 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% of fiscal 2012 operating revenues and covered a healthy 4.3x 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%) system-wide. Each of the three campuses has
experienced substantial growth, with Texas Tech University Health Sciences
Center (TTUHSC) growing at a rapid average of 10.8% per year as it ramps up to
full capacity. Growth is more moderate at Texas Tech University (TTU) and
Angelo State University (ASU), with average annual growth of 4.1% and 2.5%,
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
institutions, TTUS's tuition is below average with limited increases planned
for the near term. In addition, as of May 2012, TTUS 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.
Texas Tech University was originally established in 1923 as Texas Technical
College. In 1999, the Texas Legislature established the system by combining
Texas Tech University and Texas Tech University Health Sciences Center. In
2007, as a result of further state legislation, Angelo State University, a
former member of the Texas State University system, became the third member of
the system. In total, component institutions of the system enrolled 38,764 FTE
students in fall 2012.
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 12, 2012);
--'U.S. College and University Rating Criteria' (May 25, 2012);
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity'(June
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
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