Moody's affirms Fairmont State University's (WV) A2; stable outlook

Thursday, April 12, 2018

Global Credit Research - 11 Apr 2018

New York, April 11, 2018 -- Moody's Investors Service has affirmed Fairmont State University's (FSU) (WV) A2 on approximately $70.5 million of outstanding revenue bonds. The outlook remains stable.

RATINGS RATIONALE

The affirmation of the rating reflects Fairmont State University's positive operating performance with consistently strong cash flow margins. Liquidity, though softer in fiscal 2017, remains a strength of the university's credit profile especially given the university's conservative debt structure. Offsetting considerations include the university's small scale in a highly pressured operating environment, with continued weakening of state appropriations and recent enrollment declines.

RATING OUTLOOK

The stable outlook reflects our expectations that the university will continue to adjust operations accordingly to maintain cash flows in the 12-14% range. It also reflects expectations of continued growth in total cash and investments, stabilizing enrollment, and pledged revenues providing adequate debt service coverage on the Series 2012 and 2015 bonds.

FACTORS THAT COULD LEAD TO AN UPGRADE

  • Significant and sustained annual revenue growth, either from net tuition or state funding increases
  • Substantial growth in total cash and investments and flexible financial reserves as a result of strengthening operations

FACTORS THAT COULD LEAD TO A DOWNGRADE

  • Material decline in monthly liquidity
  • Sustained enrollment declines leading to reduced debt service coverage from pledged revenues
  • Sustained pressure on state funding without demonstrating the ability to adjust operations accordingly

LEGAL SECURITY

The Series 2015 bonds have a slightly more limited pledge than that adopted in the 2012 Resolution for the Series 2012A and 2012B bonds. The Series 2015A bonds are secured by fees imposed on FSU students and gross operating revenue derived from both FSU and Pierpont Community & Technical College (PCTC) students. In addition, the Series 2012 bondholders benefit from fees imposed on PCTC students.

Fees include those for infrastructure, capital, auxiliary, and auxiliary capital fees. Gross operating revenue such as charges for food services, room and board, and parking, are pledged from both FSU and PCTC students.

When setting fees, management must set rates so as to produce pledged revenues equal to, or exceeding, 100% of maximum annual debt service. Further, additional bonds can only be issued if pledged revenue has covered debt service charges by at least 1x for each of the two preceding fiscal years and are projected to cover debt service by a minimum of 1x for the year immediately following issuance. In fiscal 2017, approximately $12 million of pledged revenues provided 2.25x coverage of the maximum annual debt service on the Series 2012 and 2015 bonds.

PROFILE

Fairmont State University (FSU), located in Fairmont, WV, is a regional public higher education institution with a branch campus located in Clarksburg, WV and an aviation program offered in Bridgeport, WV. The university

reported fall 2017 enr rating revenue of approximately $60

million in fiscal 2017. METHODOLOGY

The principal methodology used in these ratings was Higher Education published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further in ntity page for the respective issuer on

www.moodys.com.