Fitch Affirms Institute of International Education, New York at 'AA-'; Stable Outlook.

NEW YORK -- Fitch Ratings affirms its 'AA-' rating on the $16.3 million in outstanding New York City Industrial Development Agency civic facility revenue bonds (Institute of International Education, Inc. Project), series 2001. The Rating Outlook is Stable. The 2001 bonds were sold through negotiation with Lehman Brothers. Bond proceeds were used to refinance an outstanding commercial loan in connection with the acquisition of a portion of 809 United Nations Plaza (the building) and to renovate the building.

The Institute of International Education (IIE) administers key parts of significant scholarship programs for the U.S. government, foundations, and private corporations. Since 1946, IIE has been the principal partner of the U.S. Department of State, its public affairs section, U.S. embassies, and binational commissions abroad in administering Fulbright Program (Fulbright) grants for international graduate study at both the pre-doctoral and post-doctoral levels.

The 'AA-' rating primarily reflects IIE's low debt burden coupled with sizable reserves. Maximum annual debt service on the series 2001 bonds represented the use of a low 0.6% of unrestricted revenues in fiscal 2004. IIE's available funds, which are defined as unrestricted and temporarily restricted cash and investments, decreased by approximately $5 million since fiscal 2001. However, fiscal 2004 available funds of $55 million in fiscal 2004 provide a strong 3.4 times (x) coverage of debt. Fiscal 2005 financial results are expected to be similar to fiscal 2004. IIE does not expect to issue any additional debt. Another strength in the rating is IIE's low level of fixed costs. IIE passes through substantial aid to students and others involved in exchange programs, while also using awards to administer programs and pay indirect costs, including facility and debt expenditures. Only about 13% of IIE's expenses are for fixed costs such as salaries and benefits.

In fiscal 2004, U.S. government agencies accounted for a sizable 57% of IIE and affiliate revenues, down from 67% in fiscal 2001, largely due a sizable Ford Foundation program which began in fiscal 2002. According to IIE officials, there have been no significant changes in its major scholarship programs, including Fulbright. Management deems much information about its programs and its relationships with government agencies to be confidential. Fitch views IIE's practices regarding disclosure of information to be a weakness.

The primary credit concern is IIE's weak operating margins. While IIE's financial operations are relatively stable, according to Fitch's calculations, operating margins have been negative in three of the last four years. However, including an estimated 5% payout on the endowment, operating margins are more break-even. IIE has raised $21 million to-date for its $35 million capital campaign, which was scheduled to be completed in December 2005. IIE does not expect to meet its fundraising goal due to a change in strategic priorities.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.