University of St. Thomas, MN -- Moody's affirms A2 rating on University of St. Thomas (MN) outstanding bonds; outlook is stable

New York, November 15, 2012 -- Moody's Investors Service has affirmed the A2 rating to University of St. Thomas's ("St. Thomas") outstanding bonds issued by the Minnesota Higher Education Facilities Authority. The rating outlook is stable.

SUMMARY RATING RATIONALE

The A2 rating reflects the university's stable market position as the largest private university in the state, and consistently healthy operating cash flows. These factors are counterbalanced by heavy operating reliance on student charges, a balance sheet that while highly leveraged, provides adequate coverage of operations, and the risks associated with a partial variable rate debt structure.

STRENGTHS

*Trend of positive operating performance (7% three-year average operating margin) with operating cash flow providing healthy debt service coverage (2.2 times average debt service coverage during FY 2010-2012).

*Largest private and Catholic university in Minnesota (8,822 full-time equivalent students in fall 2012) with a diverse array of academic offerings and consistent growth in net tuition per student (13% increase in the last five years).

*Strong governance and proactive management team with good oversight practices and prudent budgeting.

CHALLENGES

*Concentrated revenue base as student charges accounted for 80.3% of FY 2012 operating revenue, according to our calculations, although St. Thomas' s multiple programs at both graduate and undergraduate level add diversity to this revenue stream.

*Increased competition, especially at the graduate level evident by the continuous decline in the enrollments to 2,620 FTE in fall 2012 from 2,993 FTE in fall 2008.

*High operating and financial leverage at the current rating. The FY 2012 expendable financial resources covered the outstanding debt by 0.98 times (FY 2011 median: 1.2 times for A rated private colleges and universities). The FY 2011 debt to operating revenue was 1.1 times (FY 2011 median: 0.6 times).

*Variable rate debt structure adds risk to the credit profile as about 22% of university's debt is in variable rate mode. However, the university has significant headroom to its covenant requirements, which partially mitigates this risk.

Outlook

The stable outlook reflects our expectation that the university's market position and consistently positive operating performance will continue in the near term. The stable outlook also incorporates our expectation that the university will be able to stabilize its graduate enrollments within a year.

WHAT COULD MAKE THE RATING GO UP

Growth in graduate enrollment; Continuation of positive operating performance and substantial increase in financial resources resulting in reducing operating and financial leverage; increased revenue diversity.

WHAT COULD MAKE THE RATING GO DOWN

Decline of historically healthy operating and cash margins, even if still positive, further weakening of or inability to stabilize student market position, flat to declining net tuition revenue growth.

RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Pranav Sharma Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Jenny L. Maloney Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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