S&P: University of Dayton, OH Series 2018A&B Revenue Bonds Assigned 'A+' Rating

S&P Global Ratings assigned its 'A+' long-term rating to the Ohio Higher Educational Facility Commission's series 2018A and 2018B revenue bonds, issued on behalf of the University of Dayton (UD). At the same time, S&P Global Ratings affirmed its 'A+' long-term rating and underlying rating (SPUR) on the debt previously issued on behalf of UD. The outlook on all ratings is stable.

The $75 million series 2018A bonds are new debt and are being issued to construct and renovate various projects, including the UD arena, a new student housing project, student union renovations, and library and science center renovations. The series 2018B bonds will refund approximately $55 million of UD's series 2009 bonds for savings.

"The ratings reflect our view of UD's strong financial profile and strong enterprise profile," said S&P Global Ratings credit analyst Phillip Pena.

We assessed UD's financial profile as strong, characterized by consistently positive operating performance with exceptional margins, improving available resources, and a sizable endowment for an institution of its size. We assessed UD's enterprise profile as strong, characterized by good full-time-equivalent enrollment, a solid graduation rate, an increasing matriculation rate, and improving student quality despite a declining selectivity rate. Combined, we believe these credit factors lead to an indicative standalone credit profile of 'a'. As our criteria indicate, the final rating can be within one notch of the indicative credit level. In our opinion, the 'A+' rating on the university's bonds better reflects UD's strong operating margins and revenue diversity, in spite of some softness in certain demand metrics.

The stable outlook reflects our anticipation that, during the next two years, UD will produce positive operating margins, though they may potentially a bit weaker than fiscal 2017 levels. The outlook also reflects our view that the university will continue to grow enrollment (including on the graduate side), and will continue to sustain financial resources relative to operations and debt at levels commensurate with the rating category.

We could consider a negative rating action during the outlook period if enrollment weakens significantly, UD fails to manage its contingent liabilities adequately, or other demand metrics weaken significantly. We could also consider a negative rating action if net tuition revenue declines materially and pressures the university's robust operating margins. We believe the university has some capacity for additional debt; however, we could consider a negative rating action if the university issues significant additional debt beyond its current debt capacity, such that available resource ratios deteriorate significantly from current levels.

Although unlikely, we could consider a positive outlook during the two-year outlook period if available resources increased relative to those of peers, and the university's debt burden did not significantly pressure available resource ratios.
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