Fitch Ratings has affirmed the 'B+' rating on approximately $10.6
million of outstanding series 2007 North Carolina Capital Facilities
Finance Agency educational facilities revenue refunding bonds, issued on
behalf of Brevard College Corporation (Brevard).
The Rating Outlook remains Positive.
The bonds are a general obligation of the college, payable from all
legally available funds.
KEY RATING DRIVERS
IMPROVING FINANCIAL OPERATIONS: The Positive Outlook reflects three
years of slim but positive operating margins supported by enrollment
growth, cost containments and gifts. Slim margins are expected in the
next several years as the college strategically reinvests in its
programs, staff and infrastructure.
ENROLLMENT AND NET TUITION REVENUE GROWTH: Increased enrollment to 702
students in fall 2013 (from 638 in fall 2010) has supported net revenue
growth. Continued modest enrollment growth will be needed to support
upward rating motion.
LIMITED BALANCE SHEET: Brevard's fiscal 2013 balance sheet ratios
improved but remain very low compared to peer private institutions;
ratios were negative in 2012 due to endowment market value fluctuation.
MANAGEABLE DEBT BURDEN: The college's MADS debt burden is moderate at
5.7% in fiscal 2013. Importantly, MADS coverage of level debt service
has been positive for the last four fiscal years.
ENROLLMENT TRENDS: The rating assumes modest, consistent enrollment
growth and increases in net tuition revenue over time, particularly
given Brevard's student-revenue dependency and slim operating margins.
BALANCE SHEET: Low balance sheet ratios constrain Brevard's rating at
this time; significant weakening in balance sheet strength could cause a
negative rating action.
ACCREDITATION PROBATION: The outcome of the recent SACs accreditation
review is not expected to be determined until June 2014.
ADDITIONAL DEBT POSSIBLE: Management is considering new debt for a
student residence hall. Fitch will review the impact once the size and
structure of the transaction is determined.
Brevard is a small four-year, private liberal arts college located on
120 acres in Brevard NC, about 140 miles west of Charlotte, NC and about
30 miles southeast of Asheville, NC. All students are undergraduates,
and most attend full-time. The college recently revised its mission
statement to focus on each student receiving a distinctive, experiential
learning experience. Brevard is known for its performing arts programs
and environmental sciences.
Enrollment increased to 701 students in fall 2013, with an entering
class of 308. This was up from 633 in fall 2012. The college was founded
in 1853 as a two-year institution, and became a 4-year institution in
1995. It is affiliated with the Western North Carolina Conference of the
United Methodist Church. The college is accredited by the Southern
Association of Colleges (SACs), which placed Brevard on probation in
June 2013 due to continuing financial stress. Management reports that
SACs has visited the campus and completed a draft report, which will not
be made public until June 2014.
ENROLLMENT DRIVES IMPROVEMENTS
Brevard's operating revenues are heavily reliant on student-generated
revenues, typically about 74%, which is similar to other small liberal
arts colleges. After dropping to a low of 619 full-time equivalent (FTE)
students in fall 2011, FTE stabilized at 626 in fall 2012, and imprved
to 695 in fall 2013. Management reports that the entering fall 2014
class enrollment is expected to be similar to (or slightly higher than)
This improvement is largely attributable to enrollment strategies
implemented in fall 2012 a by a new vice president for enrollment. The
focus is on student 'fit' at the college, retention and growth in net
tuition revenue. The strategic plan, initiated by President David Joyce
after joining the college about three years ago, has a goal of building
gradually to 1,000 students by fall 2019. Fitch's Positive Outlook
recognizes progress on enrollment, net tuition revenue growth and
balanced operating performance.
SLIM BUT POSITIVE OPERATING PERFORMANCE
GAAP operating results have improved at Brevard in each of the last five
fiscal years, with positive margins in the last three years. Fiscal 2013
had a $2.9 million operating surplus, which Fitch considers overstated
as it includes a $2.5 million non-cash bequest. When adjusted for the
bequest, the margin is positive and close to break-even at $479,000, a
slimmer margin of 0.2%. This compares to $1.05 million in 2012 and
$200,000 in fiscal 2011. Management has exercised significant expense
management during the last several fiscal years, including salary
reductions and freezes, no retirement matching contributions, and
maintaining position vacancies.
In recent years management began providing modest salary increases and
making strategic investments in plant and programs. Additionally, the
budget has contained both contingency and working capital reserves. As a
result, operations are expected to remain balanced but close to
break-even on a GAAP-basis in fiscal 2014 and over the next several
WEAK AVAILABLE FUNDS
Brevard's balance sheet remains very weak, providing minimal financial
cushion. At May 31, 2013, available funds (AF), defined by Fitch as cash
and investments less permanently restricted net assets, was slightly
less than $1 million. While this is the first time in four fiscal years
that the AF value has been positive, balance sheet strength remains very
weak compared to peer institutions.
Fiscal 2013 AF was only 6.3% of operating expenses and 7.5% of
outstanding debt ($10.6 million). The college has about $21 million of
endowment, almost all of which is restricted and thus is not included in
the AF calculation. Fitch views Brevard's balance sheet as severely
DEBT BURDEN CURRENTLY MANAGEABLE
Brevard's $10.5 million outstanding bonds are fixed rate with level debt
service. MADS is $1.05 million, due in 2019. Fitch views this
conservative structure favorably. MADS represented a moderate 5.7% of
fiscal 2013 operating revenues. Brevard also has a $1.625 million bank
line of credit which it uses for operating cash-flow. The college's
fiscal 2014 and 2015 budgets have each provided $250,000 to build
working cash and reduce dependence on the bank line.
POSITIVE DEBT SERVICE COVERAGE
Brevard has posted positive debt service coverage for the last four
fiscal years, including fiscal 2013. Coverage was 4.7x in 2013 (this
level reflects a bequest receivable), 3.0x in fiscal 2012, and 2.2x in
fiscal 2011. When fiscal 2013 coverage is adjusted to exclude a $2.5
million non-cash bequest, the ratio declines to a still solid 1.9x.
Coverage is expected to exceed 1.0x in the current 2014 budget year.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Revenue Supported Rating Criteria' (June 2013);
--'U.S. College and University Rating Criteria' (May 2013).
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
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