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Fitch Ratings affirms 'A-' rating on Newark Higher Education Finance Corporation bonds.

Chicago: Fitch Ratings, a nationally recognized statistical rating organization (NRSRO) designated by the U.S. Securities and Exchange Commission, affirmed the 'A-' rating on the tax-exempt series 2016A education revenue bonds issued by Newark Higher Education Finance Corporation, TX, on behalf of Abilene Christian University (ACU), and the taxable series 2016B education revenue bonds issued by ACU.

The 'A-' rating remains supported by ACU's strong balance sheet relative to the rating category, with fiscal 2017 available funds (AF) equal to 198% of expenses and 193% of outstanding debt. Fiscal 2018 AF ratios are expected to improve further. Balance sheet strength helps balance negative GAAP operations and lower-than-expected enrollment growth expectations. ACU did not achieve sufficient MADS coverage in fiscal 2017 or 2018, as expected by Fitch. MADS coverage in fiscal 2017 was only 0.1x; it is projected to improve somewhat in fiscal 2018. ACU has not achieved current debt service coverage for six consecutive years, including projected 2018. If fiscal 2018 results were adjusted for non-recurring expenses, ACU would have just achieved 1.0x MADS coverage, and current coverage would have been somewhat stronger. Management reports that debt service was made partly from reserves.

The Negative Outlook is driven by essentially eight years of negative GAAP operating results, with fiscal 2017 and projected 2018 results much weaker than ACU's projections at the time of Fitch's initial rating. ACU reports slower-than expected ramp-up of ACU-Dallas on-line enrollment, as well as some one-time expenses in fiscal 2018, including a voluntary retirement incentive. ACU estimates fiscal 2019 GAAP results will be positive.

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Nov 29, 2018
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