OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' long-term rating on approximately \$50.7 million of outstanding combined fee revenue bonds issued by El Paso County Community College District, TX (EPCC).

The Rating Outlook is Positive.

SECURITY
The combined fee revenue bonds are secured by a pledge of and lien on pledged tuition fees, a mandatory building use fee charged per semester credit hour, and interest earnings.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The Positive Outlook is based on EPCC's trend of positive operations, healthy reserves and strong expense management during periods of countercyclical enrollment declines and pressured state funding. Credit risks include potentially large capital needs, narrow additional O&M taxing capacity, and still moderately declining enrollment.

LARGE POTENTIAL CAPITAL NEEDS: The district expects potentially large capital spending for projected population and enrollment growth. Specific amounts and timing are not available as capital planning is not yet complete. Uncertainty about the magnitude of capital plans and lack of demonstrated enrollment growth to date preclude further positive rating action at this time.

MARKET POSITION REMAINS SOUND: EPCC serves El Paso County (certificates of obligation rated 'AA' by Fitch) and Hudspeth County. Quality and student outcomes are solid. Management projects El Paso County's population will continue growing. EPCC also expects to benefit from the expanding military presence at nearby Fort Bliss, where EPCC will open its sixth campus.

MANAGEABLE DEBT BURDEN: EPCC has a moderately low debt burden and a track record of sound institutional debt service coverage from operating net income. The district's debt is all revenue-supported. At this time, Fitch believes EPCC maintains some additional revenue debt capacity.

RATING SENSITIVITIES

CAPITAL AND DEBT PLANS: Fitch will evaluate El Paso County Community College's capital and debt plans over the next two years. If projected financial cushion and debt burden including new capital and debt plans remain healthy, a positive rating action is likely.

OPERATING PROFILE: The Positive Outlook assumes that EPCC's operating results remain strong, and that it will manage effectively through enrollment and state funding cycles. A trend of deficit operating results could lead to negative rating action or a return to a Stable Outlook.

CREDIT PROFILE
Established in 1969, EPCC is governed by an elected seven-member board of trustees and currently has five campuses located throughout El Paso County. In 2014, EPCC successfully resolved a warning from its accreditor, related to full-time faculty ratios, and remains fully accredited.

STRONG FINANCIAL PERFORMANCE

EPCC's operating margin has averaged 3.9% between fiscal years 2010 and 2014, including 6.2% in the most recent year. Fitch considers these results impressive given the pressured state funding and moderately declining enrollment in recent years. Financial management is sound, with conservative budgeting and good management of expenses. Good revenue diversity helps the district maintain positive operations when individual revenues streams are stressed. Fiscal 2015 operations are expected to be positive, as well.

Consistently positive operations have helped the district to build its financial resources. Available funds (cash and investments less certain restricted net assets) have grown 6% on average each year from \$56.1 million as of Aug. 31, 2010 to \$70.8 million as of Aug. 31, 2014. At this level, available funds are adequate compared to expenses (41.8%) and strong compared to debt (128.6%). However, available funds and debt metrics are expected to weaken with additional debt and capital spending over the next few years.

LARGE POTENTIAL CAPITAL NEEDS

The district is planning for potentially large capital spending over the next decade. EPCC is preparing to accommodate higher demand associated with projected population growth in El Paso County over the next five to 10 years. Capital spending will include construction of EPCC's sixth campus at nearby Fort Bliss in addition to expansion at existing sites. Management estimates potential debt needs between \$20 million and \$50 million over the next two to three years in addition to capital spending funded from internal reserves. However, planning is not complete; there is still uncertainty about the magnitude of debt and capital needs.

SOUND MARKET POSITION

EPCC's service area includes all of El Paso County (Certificates of Obligation rated 'AA' by Fitch) and Hudspeth County. Management expects enrollment and therefore net tuition revenue to begin to stabilize in the near term based on regional population trends, and the pace of enrollment decline appears to be slowing. Fall 2014 headcount was down 2.6% from the prior year, whereas fall 2013 enrollment had fallen 4.6% from the prior year. Over the next decade, EPCC projects continued population growth in El Paso County and continued growth on and around Fort Bliss, both of which could drive higher enrollment.

MANAGEABLE DEBT BURDEN

EPCC has a moderately low debt burden, with maximum annual debt service (MADS) of approximately \$7.0 million (includes payments on bonds, notes, and leases) consuming 3.9% of unrestricted fiscal 2014 operating revenues. In addition, institutional MADS coverage from operations was sound at 2.7x in fiscal 2014 and has averaged 2.1x over the past five years. The district has no tax-supported debt; revenue-supported debt is conservatively structured, all fixed-rate and maturing by 2025. Fitch believes EPCC has some additional debt capacity at this time.