OREANDA-NEWS. Fitch Ratings has upgraded $66.3 million of California Municipal Finance Authority revenue bonds (University of La Verne) series 2010A to 'A-' from 'BBB+'.

The Rating Outlook is Stable.

SECURITY
The bonds are a general obligation of the university, payable from legally available funds. A security interest in a deed of trust on certain campus property and a cash-funded debt service reserve fund provide additional bondholder security.

KEY RATING DRIVERS

BALANCE SHEET IMPROVEMENT: The upgrade reflects the University of La Verne's (ULV) improved balance sheet resources, which are now in line with the lower end of 'A' category peers. ULV has substantially grown its balance sheet resources over time by allocating annual operating surpluses to quasi-endowment funds.

STRONG OPERATING RESULTS: La Verne has consistently generated robust GAAP-based operating margins, averaging 7.8% over fiscal years 2010-2014, supported by enrollment-driven revenue growth and conservative budgeting. ULV's prudent financial practices are a credit strength.

STABLE ENROLLMENT TRENDS: Healthy enrollment continues to bolster ULV's strong operations. The traditional undergraduate segment continues to expand, offsetting mixed trends in some graduate programs. Effective enrollment management helps offset ULV's very high (95%) reliance on student tuition and fee revenues.

MANAGEABLE DEBT BURDEN: ULV's debt burden is moderately high but manageable. Maximum annual debt service (MADS) consumed 7.1% of fiscal 2014 operating revenues, but annual surpluses provide strong MADS coverage (2.7x in fiscal 2014). Capital plans are manageable, with no specific debt plans at this time.

RATING SENSITIVITIES

ENROLLMENT STABILITY: Given the University of La Verne's (ULV) high reliance on student-generated revenues, enrollment stability is necessary to maintain strong operations and generate sound coverage.

BALANCE SHEET STRENGTH: ULV's currently contemplated capital plan projects, which likely include some new debt over the next five years, are manageable given its strong operations and conservative management. However, failure to maintain available funds to debt generally 1x or better could negatively pressure the rating.

CREDIT PROFILE
ULV is a private university founded in 1891. It offers 70 undergraduate majors as well as graduate degrees and non-degree programs through four colleges, with a headcount enrollment of roughly 10,000 students. Its main campus is situated on 38 acres in the City of La Verne (30 miles east of Los Angeles) and its College of Law is located nearby in the City of Ontario. In addition to providing degree programs at two military bases, the university's Regional Campus and Online Administration maintains seven regional campuses throughout southern California and offers online programs.

IMPROVED BALANCE SHEET RESOURCES
La Verne's balance sheet resources have improved in recent years due to reinvested operating surpluses and sound investment returns. Available funds (AF), defined by Fitch as cash and investments not permanently restricted, totaled $118.7 million at June 30, 2014, equal to a satisfactory 88.3% of operating expenses and 105.3% of debt (including non-cancelable operating leases). Unaudited fiscal 2015 financial data show continued growth in AF. Fitch considers the university's practice of designating portions of its annual operating surplus to quasi-endowment prudent.

Including board-designated quasi-endowment, La Verne's endowment totaled $63.2 million as June 30, 2014, up from $48.0 million the prior year. Investment allocations remain conservative, with under 12% currently allocated to alternative investments. The endowment spending policy, 4.75% of the prior 12 quarters' average market value, is sustainable.

CONTINUED POSITIVE OPERATING PERFORMANCE
La Verne's financial performance remains strong. Fiscal 2014 operations (inclusive of endowment support) produced a robust margin of 9.5%. Unaudited results for fiscal 2015 indicate another soundly positive operating margin of approximately 7%. Financial results reflect continued revenue growth, structurally balanced operations and conservative budgeting. Fitch expects that La Verne will maintain its positive operating performance based on overall healthy enrollment trends and strong financial management. ULV's management team utilizes conservative budgeting practices and detailed multi-year forecasting.

HEALTHY DEMAND AND ENROLLMENT
The university is highly dependent on student-generated revenues as its primary revenue source. They provided 94.7% of annual operating revenues in fiscal 2014, underscoring the importance of enrollment management.

Undergraduate enrollment has grown significantly in recent years led by its full-time traditional undergraduate segment. Undergraduate headcount increased from 4,274 in fall 2010 to 5,211 in fall 2014, followed by a large incoming fall 2015 class. Graduate and professional enrollments have been more mixed in recent years but are generally stabilizing, as management has adapted program offerings to align with market demand. ULV's enrollment base is well balanced across traditional undergraduates, adult learners, regional campuses, and several graduate and professional programs. Fitch believes that this programmatic diversity somewhat offsets La Verne's high reliance on student-generated revenues.

MANAGEABLE DEBT BURDEN
The university's debt burden remains manageable. MADS accounted for a moderately high 7.1% of fiscal 2014 operating revenues. However, positive operating margins drive strong MADS coverage, including 2.7x in fiscal 2014. ULV's debt structure is conservative, with only fixed-rate amortizing obligations. ULV's bank placements are not a significant concern. The obligations, which account for about 30% of ULV's debt, are on parity with the 2010 bonds, and ULV maintains ample headroom under financial covenants.

ULV's recently developed capital plan through 2021 will involve some near-term use of institutional funds for capital projects, with other projects likely funded through fundraising and some new debt issuance over the next five years. Fitch expects the plan will be manageable at the current rating level based on ULV's conservative management, strong cash flows, and flexibility to delay or adjust most projects based on funding sources. However, failure to maintain available funds to debt of generally 1x or better could negatively pressure the rating.