OREANDA-NEWS. Fitch Ratings has assigned a 'AA-' rating to the following series of bonds to be issued by the New Jersey Educational Facilities Authority (NJEFA) on behalf of The College of New Jersey (TCNJ or college):

--$83.775 million series 2016F revenue refunding bonds;

--$105.64 million series 2016G (taxable) revenue refunding bonds.

The bonds are expected to sell via negotiation on Aug. 23, 2016. Proceeds will be used to refund all or part of outstanding Series 2008 D revenue refunding bonds and Series 2010B Build America Bonds revenue bonds, and to pay the costs of issuance. (The refunding of the 2010B bonds is a crossover, with a crossover date of July 1, 2019 and will have a crossover escrow. Prior to the crossover date, the 2010B bonds will be a general obligation of the college, and not secured by an escrow.)

In addition, Fitch has affirmed the 'AA-'rating on approximately $350 million of outstanding NJEFA bonds issued on behalf of TCNJ.

The Rating Outlook is Stable.

SECURITY

The bonds are ultimately a general obligation of the college, payable from legally available funds.

KEY RATING DRIVERS

STRONG STUDENT DEMAND STATISTICS: TCNJ's student quality, as measured by standardized testing, is strong; along with a very high student retention rate (freshmen to sophomore) and a very healthy six-year graduation rate.

DEMAND-DRIVEN FINANCIAL FLEXIBILITY: Student-generated revenues are the primary revenue driver. TCNJ's headcount enrollment has remained relatively stable and has served to offset some volatility in state appropriations. TCNJ will need to sustain stable enrollment trends to continue to support operations.

HIGH DEBT BURDEN: TCNJ's debt burden remains high; although historically the college has been able to generate sufficient net income available for debt service. Concern over the high leverage is somewhat mitigated by the fairly rapid debt amortization schedule which should lead to improved leverage over time.

RATING SENSITIVITIES

INCREASING LEVERAGE: The College of New Jersey's issuance of additional debt, without a commensurate increase in financial resources available to support repayment, will likely trigger negative rating action.

OPERATIONAL STABILITY: The college's rating could be negatively affected by an inability to grow student generated revenues sufficient to offset decreasing state support, and generate positive operations.

CREDIT PROFILE

TCNJ, founded in 1855 and located in the suburb of Ewing, New Jersey, is a public institution of higher education in the state. The college's strong liberal arts core forms the foundation for over 50 majors offered throughout the college's seven schools. Enrollment has been stable, and for fall 2016, FTE enrollment is projected at 6,987, reflecting a 0.43% increase over the fall 2015 level. The college has residential facilities and houses approximately 60% of students.

STEADY DEMAND

The college's demand profile is strong. Freshmen applications have seen steady growth, reaching 11,827 for fall 2016, up approximately 15% since fall 2012. Student quality, based on standardized test scores, remains strong with an average combined SAT of 1230 for fall 2015. TCNJ enjoys fairly high selectivity; over the past few years, 49% of applicants were accepted for admission. At the same time, the matriculation rate has been about 26%, indicative of the competitive environment in which the college operates.

The freshmen to sophomore retention rate is very high at about 94% the past five years; while the six-year graduation rate of 87% ranks in the top 10 among public colleges and universities in the country. In-state students make up the majority of the student population (about 92%), as the college seeks to keep the state's most talented students in-state, but also attract talented out of state students.

Strength in student demand and enrollment is critical to maintaining the rating, as tuition/fee revenue is the largest source of operating revenue.

ADEQUATE OPERATIONS, BUT SLIM FINANCIAL CUSHION

TCNJ'S revenue base is concentrated, with tuition and fees accounting for the largest share of operating revenues at approximately 64%, followed by state appropriations (operating and fringe) at about 25%. Tuition and fee revenues have grown annually, due to tuition and fee increases and increased enrollment, while operating appropriations have been essentially flat.

Operations have narrowed in recent years from a 4.3% margin in 2011 to 0.4% in 2014. The margin in fiscal 2015 was a negative 2.2%, as reported in the financial statements. However, this result incorporates the GASB pension reporting changes. If not for the recent GASB change, Fitch estimates that fiscal 2015 would have ended in a similar position to fiscal 2014, with an approximate 0.5% margin. Management anticipates that net position will increase in fiscal 2016, excluding GASB 68 and based on unaudited numbers.

Even though the operating margin has seen some slimming, the available funds (AF) level has been maintained. In fiscal 2015, AF (defined as cash and investments less non-expendable restricted net assets) reached approximately $114.0 million, equal to 51.1% of operating expenses and 30.3% of debt. Versus expenses, the ratio is fairly comparable to Fitch's peer group; however, the debt ratio is below the median. The weaker debt ratio is due to the fairly limited amount of capital support historically provided by the State of New Jersey. The available funds level does not include approximately $40.9 million of The College of New Jersey Foundation's assets.

Given that TCNJ is nearing enrollment capacity, enrollment growth is expected to be more limited than in the past; therefore, the resource base is expected to grow only modestly as operating surpluses are expected to remain slimmer. Favorably, the college has publicly launched its first comprehensive campaign in 2015, with a $40 million goal through June 2017. As of June 30, 2016, TCNJ is at approximately 90% of this goal, and the proceeds will fund various college initiatives, many of which would have had to have been funded internally if not for the campaign.

TCNJ's new strategic plan runs through 2021 and includes numerous goals and associated benchmarks. In addition, TCNJ has an in depth enterprise risk management plan and Fitch views the management team's overall planning processes favorably. The college is currently reviewing its debt capacity; the outcome of which will determine the future debt plans.

HIGH LEVERAGE

Maximum annual debt service (MADS) consumes a high 13.9% of fiscal 2015 operating revenues, which does not include non-recourse debt. Fitch does not include any Campus Town debt in its calculation of debt burden given the state legislation prohibiting the college from financing any portion of Campus Town, or being financially obligated.

TCNJ's MADS burden is the highest among public colleges and universities rated by Fitch in the 'AA' category; however, MADS coverage from net income available for debt service is acceptable at 1.3X in fiscal 2015, counterbalancing some concern.

Further, rapid principal amortization should help moderate this high debt burden over time. However, management is currently reviewing its debt capacity and could potentially issue additional debt in the next few years. This potential issuance is not incorporated into Fitch's analysis, as neither the timing nor the size of the financing has been determined.