Fitch Rates New Jersey City University Revs 'A-'.

NEW YORK -- Fitch assigns an 'A-' rating to the up to $10 million New Jersey Educational Facilities Authority revenue bonds, New Jersey City University, series 2006C federally taxable issue, to be sold on behalf of New Jersey City University (NJCU). In addition, Fitch affirms the 'A-' underlying rating on $21.6 million of series 2005A bonds. The Rating Outlook is Stable.

The bonds will be issued as auction-rate securities. The broker-dealer is Merrill Lynch & Co. Bond proceeds will be used to advance refund $450,000 principal amount of series 1999 B bonds maturing on July 1, 2025, refinance an interim bank loan, and pay costs of issuance. The bonds are expected to be sold on or about Feb. 15.

The 'A-' rating is primarily supported by NJCU's relatively stable enrollment, positive operating trends for the past four years, and overall strong management practices. Fall 2005 headcount was 8,380. Although enrollment was down from 2004 peak levels, both the total and full-time student complement exceeded pre-2004 levels. The decline in 2005 was due to a change in the graduate enrollment policy, and management has stepped up marketing initiatives to recapture enrollment growth.

NJCU's operating margins exceeded a healthy 5% for the past two fiscal years. Fiscal 2005's performance reflects increased student enrollment, higher tuition and fees, and increased State appropriations. Management is instituting cost-saving measures in fiscal 2006 to mitigate lower enrollment and the moderating increase in state appropriations.

The primary credit concerns are the projected increase in the university's debt burden, lower liquidity, and state budgetary pressures, which could limit near-term appropriations. State appropriations, including funding for fringe benefit costs, represented 42% of fiscal 2005 unrestricted revenues. Fitch rates the general obligation debt of the state 'AA-'. A significant reduction in funding for NJCU from the state could have a negative impact on the financial operating performance due to the University's weak liquidity. Concerns about state appropriations have prompted a delay in certain financing plans, and exemplifies management's cautious approach to planning and fiscal management.

Following the issuance of the series 2006C bonds, maximum annual debt service (MADS) and capital lease payments are expected to total $8.1 million in 2007. MADS could represent a use of 7.2% of fiscal 2005 revenues, and is at the high range of the medians for public colleges and universities rated in the 'A' category.

Fitch stressed debt ratios to incorporate about $15 million of additional debt to be issued by fiscal year-end. Management has also disclosed preliminary plans for a $35 million off-balance-sheet privatized housing and parking project for fiscal 2007. Specifics and terms have not been finalized, and the off-balance-sheet debt has not been factored into Fitch's analysis. These transactions are part of the $125 million of additional debt planned for the next five years to finance a $200 million capital improvement program. While Fitch views the projected increased debt burden to be high, it believes that management has flexibility in its planning process.

Available funds, which Fitch defines as unrestricted and temporarily restricted cash and investments, declined to $17.8 million at the end of fiscal 2005, due to drawdowns for capital expenditures. Available funds cover only 16.7% of fiscal 2005 expenses, and 14.3% of debt, and compares unfavorably with Fitch's median ratios. The rating and Outlook assume no further material decline in available funds. Fitch also notes that management's practice of funding depreciation expense and modifying capital spending provides an opportunity to replenish liquidity.

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