Moody's assigns initial A1 to Fort Hays State University's $30.5M Series 2016B Revenue Bonds; outlook stable.

New York: Issue: Revenue Bonds, Series 2016B (Fort Hays State University Projects); Rating: A1; Sale Amount: $30,450,000; Expected Sale Date: 03-08-2016; Rating Description: Revenue: Public University Broad Pledge

Summary Rating Rationale

Moody's Investors Service assigned an initial A1 to Fort Hays State University's (FHSU) proposed $30.5 million Series 2016B Revenue Bonds maturing in 2041. The A1 rating reflects the university's revenue diversity provided by enrolling students on campuses in Kansas and China as well as online, strong operating surpluses driven by years of solid net tuition revenue growth, and a very modest leverage profile that enables easy absorption of the new debt. The rating also incorporates slowed revenue growth in recent years, with state funding expected to be stagnant at best.

Rating Outlook

The stable outlook reflects the potential of more moderated surpluses as growth in key revenue sources slows. It also reflects the possibility of modest declines in cash and investments as the university makes capital investments.

Factors that Could Lead to an Upgrade

Significant growth in flexible reserves to cushion potentially more volatile enrollment strategies

Strengthened brand recognition as highlighted by resumed and sustained solid growth in net tuition revenue

Factors that Could Lead to a Downgrade

Significant weakening of operations

Deterioration of financial support from or credit quality of the State of Kansas

Legal Security

The Series 2016B bonds are unsecured obligations of the university, payable from all legally available revenue.

Use of Proceeds

The proceeds of the bonds will be used to finance a portion of the costs to construct new student housing, capitalize interest until October 1, 2017, refund the Series 2003D and Series 2005G-1 revenue bonds, and pay the costs of issuance.

Obligor Profile

Fort Hays State University, founded 1902, is a regional public university in northwest Kansas that serves students globally through multiple platforms. If offers a traditional on-campus experience in Kansas, degrees through online enrollment, and its location in China, where it educates over 3,000 Chinese students. In total, FHSU currently enrolls 14,210 students, of which only 4,763 are on campus. The university generated $120 million in revenue in FY 2015.

Methodology

The principal methodology used in this rating was Global Higher Education published in November 2015.