HESTER OUNTY (PA) HEALTH AND EDUATION FA ILITIES …
CHESTER COUNTY (PA) HEALTH AND EDUCATION FACILITIES AUTHORITY (ISSUER) IMMACULATA UNIVERSITY (BORROWER) PRIVATE HIGHER EDUCATION, US
RESEARCH | 23 OCTOBER 2017
IMMACULATA UNIVERSITY FACES ENROLLMENT WOES
Negotiated sale, pricing 24 October Revenue Bonds (Immaculata University Project) Series 2017 ? USD 37.72m
CREDIT TREND
Significant enrollment declines at Immaculata University (the university) led to recurring operating losses. New leadership is implementing various enrollment initiatives, which are likely to restrain revenue growth and hurt student demand in the long run. The current offering will help the university to reduce interest risk exposure, but leave it highly levered.
INTRODUCTION
The university, located 20 miles west of Philadelphia, is a private Catholic institution founded by the Sisters, Servants of the Immaculate Heart of Mary (IHM), and provides liberal arts and professional education to traditional and adult students. IHM owns the land and buildings comprising Immaculata's campus, except for some athletic facilities, a stadium, a library and an office building, which are owned by the university.
While Immaculata recently transformed to lay leadership, welcoming its first president who is neither a Catholic sister nor a priest, IHM still takes an active involvement and maintains reserved powers regarding the university's operations, including final approval over certain matters voted on by the board of trustees. Four out of the seven senior leadership positions were newly appointed this year (see table below).
President
Vice president for finance and administration Vice president for enrollment management Vice president for academic affairs Vice president for student development and engagement Vice president for university advancement, marketing and communications
Vice president for mission and ministry
Senior Management Team
Barbara Lettiere
Janet M. Garrity
Gerald Wargo Angela Tekely
Lettiere began her term on 1 July 2017, after serving as chair of Immaculata's board of trustees for the past seven years. The previous president, Sister Patricia Fadden, stepped down in June 2017 after 15 years of service.
Garrity began her term on 1 May 2017, after serving as a member of the board of trustees for the past three years.
Wargo joined on 1 September 2015, after serving DeVry University as president since academic year 2012-2013.
Tekely is the interim vice president for academic affairs.
Patricia Canterino
Canterino received a promotion to vice president on 1 June 2017, after serving Immaculata in the athletics department for the prior 17 years.
Regina Donovan
Sister Mary Henrich, IHM
Donovan joined on 19 September 2017, after most recently serving as president and board chair for the Association of Fundraising Professionals, Greater Philadelphia Chapter.
Henrich was a former assistant professor of theology at Immaculata, and received a promotion to vice president on 1 July 2016.
The university reported operating deficits in both FY15 and FY16, following years of enrollment losses. The new leadership continues to face enrollment pressures as universities in Pennsylvania compete for fewer high school graduates, despite various enrollment initiatives.
The current offering will refund past issues, including certain variable-rate debt, to achieve cost savings and reduce interest risk exposure. The bonds are general obligations of the university, secured by a revenue pledge consisting of all receipts and revenues generated from the operation of the university. Assets of IHM, including Immaculata's campus, will not be subject to any lien as security for payment of the bonds.
Enrollment and admissions
Immaculata primarily draws students from within the state (66%), and approximately 77% of its student population is Catholic. During the past five years, total headcount enrollment dropped 37% while its full-time equivalent (FTE) enrollment fell 19% (Table I). This negative trend reflects the declining enrollment at Catholic high schools statewide, particularly in the Philadelphia region.
It appears past enrollment initiatives, including outreach events with local high schools, new academic programs, various capital investments, higher tuition discounts (27% in FY16 compared to 22% in FY12), and a 5% reduction in room and board fees in fall 2016 did not have any material impact on student demand. A higher acceptance rate largely contributed to the mild rebound in the incoming class size during fall 2016 (Table I). Meanwhile, based on SAT scores, student quality has remained stable.
Under its new leadership, the university implemented a 24% tuition cut for undergraduates, and made SAT and ACT scores optional for admissions during fall 2017. However, there has yet to be a reversal in the declining enrollment trend, as the university reported 885 undergraduates enrolled in fall 2017, compared to 900 during the prior year. In addition, dropping the standard test requirement is likely to have a negative impact on the university's reputation, and thus in turn hurt student demand in the long run.
Competition
Table II shows Immaculata's competitors, primarily consisting of other private Roman Catholic universities in Pennsylvania. The university is the third Catholic school within the state to reset its tuition rate, following Rosemont College, which cut its tuition by 43% in 2015, and LaSalle University, which cut its tuition by 29% in fall 2017. Immaculata is more affordable compared to most of the schools in this group, and its admission statistics are softer.
Use of proceeds
The proceeds of the Series 2017 bonds, together with other available funds, will refund all past issues and fund a debt service reserve.
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CHESTER COUNTY (PA) HEALTH AND EDUCATION FACILITIES AUTHORITY (ISSUER) IMMACULATA UNIVERSITY (BORROWER) PRIVATE HIGHER EDUCATION, US
RESEARCH | 23 OCTOBER 2017
IMMACULATA UNIVERSITY FACES ENROLLMENT WOES
Financial operations
Net tuition revenues, which account for about 71% of the university's operating revenues, dropped by 21% during the period of FY12-FY16 (Table III), echoing a 19% decline in FTE enrollment during that time (Table I). The tuition reset in fall 2017 might restrain Immaculata's ability to generate revenues, unless there is a substantial improvement in enrollment.
To better align costs with shrinking revenues, the university relied on layoffs and eliminated vacant positions, which led to a 19% decline in FTE faculty during the past five years. Total operating expenses declined by 8% as a result. However, as total operating revenues fell at a faster pace, the university recorded an operating deficit of USD 2.6m in FY15, followed by another deficit of USD 892,275 in FY16. Unaudited financials for FY17 show a larger deficit of USD 4m.
Debt profile
The Series 2017 bonds will be the university's only bonds outstanding upon issuance. In addition, the school has various notes payable and capital lease agreements of USD 4.48m. This amount includes about USD 3.262m in an outstanding line of credit loan from IHM. The maximum that can be drawn on the line, which is available for working capital, is USD 10m. The line is an unsecured general obligation of the university, and subordinate to payment of the Series 2017 bonds.
The university is in a highly leveraged position. Its total debt outstanding of USD 42.2m (including bonds and notes) is equal to 1.07 times net assets of USD 39.61m and 2.5 times endowment of USD 16.91m.
Security features Pledged revenues consist of all receipts and revenues generated from
the operation of the university, but excludes restricted donations and restricted income. A debt service coverage ratio of 1.1x for FY18 and FY19, and of 1.2x starting in FY20. A debt service reserve fund.
on 30 June and 31 December of each year beginning 30 June 2018. Additional bonds test: (1) pro forma annual debt service coverage of
1.25x, based on the two most recent fiscal years; or (2) for refunding bonds, pro forma maximum annual debt service (MADS) is not to exceed 110% of MADS prior to the refunding. No mortgage lien.
Rating summary Fitch has assigned a BB rating and a stable outlook to the bonds.
Continuing disclosure The university has hired the Bank of New York Mellon Trust Company NA as its dissemination agent, and will disclose annual financial information and operating data within 150 days following each fiscal year ended 30 June. During the past five years, the university had various disclosure violations, including deficient and late filings of its annual report.
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CHESTER COUNTY (PA) HEALTH AND EDUCATION FACILITIES AUTHORITY (ISSUER) IMMACULATA UNIVERSITY (BORROWER) PRIVATE HIGHER EDUCATION, US
RESEARCH | 23 OCTOBER 2017
IMMACULATA UNIVERSITY FACES ENROLLMENT WOES
Enrollment
TABLE I: Enrollment and Admissions
Fall 2012
Fall 2013
Fall 2014
Fall 2015
Undergraduate Headcount 1,155
1,137
1,032
977
Graduate Headcount 1,234
1,104
1,161
1,173
Non-Traditional Headcount* 1,728
1,407
1,038
766
Total Headcount Enrollment Total FTE Enrollment
4,117 2,279
3,648 2,023
3,299 2,301
2,966 2,037
Freshman Admissions
Applied Accepted
1,650 1,314
1,772 1,451
1,729 1,310
1,586 1,250
Acceptance Rate
79.6%
81.9%
75.8%
78.8%
Enrolled Matriculation Rate
243 18.5%
286 19.7%
219 16.7%
191 12.0%
Standard Test Score
SAT Math SAT Verbal SAT Writing
474
475
483
483
476
477
492
487
480
472
493
484
Source: Preliminary official statement * Adult undergraduate students
Fall 2016 900 1,055 604 2,610 1,835
Five-yr % change -22% -15% -65% -37% -19%
1,584 1,304 82.3% 217 16.6%
-4% -1%
-11%
485
2%
495
4%
496
3%
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CHESTER COUNTY (PA) HEALTH AND EDUCATION FACILITIES AUTHORITY (ISSUER) IMMACULATA UNIVERSITY (BORROWER) PRIVATE HIGHER EDUCATION, US
RESEARCH | 23 OCTOBER 2017
IMMACULATA UNIVERSITY FACES ENROLLMENT WOES
Private Institutions
Location
TABLE II: Competition Tuition 2017-18 Acceptance Matriculation Retention Graduation Enrollment Five-yr % change
Immaculata University Immaculata
$26,500
82%
17%
83%
67%
2,160
-45%
St. Joseph's University Philadelphia
$43,700
78%
18%
90%
80%
7,345
9%
LaSalle University
Philadelphia
$28,800
77%
Chestnut Hill College
Philadelphia
$34,950
64%
Holy Family University Philadelphia
$29,338
68%
Villanova University
Villanova
$50,554
44%
DeSales University
Center Valley
$34,500
76%
20%
78%
65%
5,310
21%
66%
48%
1,698
33%
77%
60%
2,109
22%
96%
90%
10,209
23%
78%
68%
2,942
-5% -13% -12% 1% 3%
Gwynedd Mercy
Gwynedd Valley
$32,820
91%
27%
80%
51%
2,415
6%
Alvernia University
Reading
$32,840
74%
Marywood University
Scranton
$32,190
68%
Cabrini University
Radnor
$30,400
71%
Neumann University
Aston
$28,710
94%
Rosemont College
Rosemont
$18,500
69%
26%
76%
53%
2,495
21%
83%
66%
2,888
21%
76%
60%
1,849
27%
70%
54%
2,678
16%
65%
48%
747
-4% -10% -32% -9% 1%
Source: Preliminary official statement; National Center for Education Statistics, fall 2016 data. Note: Enrollment based on 12-month unduplicated FTE enrollment.
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CHESTER COUNTY (PA) HEALTH AND EDUCATION FACILITIES AUTHORITY (ISSUER) IMMACULATA UNIVERSITY (BORROWER) PRIVATE HIGHER EDUCATION, US
RESEARCH | 23 OCTOBER 2017
IMMACULATA UNIVERSITY FACES ENROLLMENT WOES
Fiscal years ended 30 June, in USD Net tuition revenues Auxiliary revenues Other revenues Total operating revenues Total operating expenses Operating surplus (deficit) Non-operating activities Changes in Unrestricted Net Assets Changes in temporarily restricted net assets Changes in permanently restricted net assets Net assets at beginning of year* Net assets at end of year
2012
TABLE III: Financial Summary
2013
2014
44,136,029
43,036,648
42,129,389
5,912,114
6,226,640
6,912,749
5,025,330 55,073,473
4,973,488 54,236,776
4,971,168 54,013,306
54,254,514
54,039,445
53,993,641
818,959 874,926
197,331 692,181
19,665 175,912
1,693,885 (1,381,381)
338,698
889,512 856,279 350,185
195,577 1,336,468 158,817
37,270,525
37,921,727
37,842,520
37,921,727
40,017,703
39,533,382
2015 38,333,585 6,464,509 5,012,996 49,811,090 52,446,085 (2,634,995) (426,318) (3,061,313)
58,835 219,559 38,007,565 35,224,646
2016 35,082,820 6,031,999 8,005,052 49,119,871 50,012,146 (892,275) (870,323) (1,762,598) 4,871,537 1,276,417 35,224,646 39,610,002
Five-yr % change -21% 2% 59% -11% -8%
4%
Statement of Financial Positions, in USD Cash and cash equivalents Investments Notes payable Bonds payable
2,251,668 19,229,884 8,267,019 35,705,818
1,443,859 20,811,694 8,055,953 34,816,814
2,731,306 22,564,005 7,901,662 40,260,442
8,060,275 17,517,128 7,962,145 39,831,891
6,053,164 17,012,809 4,483,821 39,380,384
169% -12% -46% 10%
Endowment Funds, in USD Unrestricted Temporarily restricted Permanently restricted Total
5,486,168
5,933,682
6,304,834
6,096,710
5,543,927
1%
1,873,083
2,723,415
3,922,086
3,925,812
3,168,492
69%
6,786,328
7,136,513
7,203,541
7,423,100
8,199,242
21%
14,145,579
15,793,610
17,430,461
17,445,622
16,911,661
20%
Debt Service Coverage Ratio Income available for debt service Debt service requirement Coverage ratio
6,981,754 3,208,544
2.18x
6,096,787 3,454,981
1.76x
Source: Preliminary official statement; annual audits, FY12-FY16; EMMA filings * Reflecting restatement of beginning balance in FY14 and FY15.
5,757,717 2,757,403
2.09x
3,937,916 2,749,613
1.43x
5,303,449 2,407,509
2.20x
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