NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' rating on approximately $127.5 million Volusia County Educational Facilities Authority, FL revenue and refunding bonds (Embry-Riddle Aeronautical University (ERAU), Inc. project).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a gross revenue pledge of ERAU. As additional security, the university has granted a mortgage lien on its Daytona Beach campus.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'A-' rating primarily reflects a history of positive operations, supported by stable enrollment, manageable debt burden and growing balance sheet resources. The aforementioned attributes are offset in part by a high reliance on student derived revenues and increasing capital needs, portions of which are expected to be debt financed.

FUNDAMENTAL DEMAND STRENGTH: The university's international reputation and market niche within aeronautical and aerospace engineering underpins stable to growing enrollment trends. Enrollment volatility at ERAU's Worldwide campus, providing delivery at 150 locations and online, is anchored by stability at its two residential campuses in Florida.

PRUDENT FINANCIAL MANAGEMENT: ERAU's timely and consistent management of operating fluctuations has enabled ongoing generation of operating surpluses that provide sound pro forma debt service coverage and support liquidity growth.

MANAGEABLE CAPITAL SPENDING PLANS: The university will continue to utilize a portion of its internal resources, which it has significantly increased over the past few years, to fund capital projects. Based on projected cash flows, Fitch expects ERAU's balance sheet liquidity will remain relatively stable given the university's strong performance trends.

RATING SENSITIVITIES

ADDITIONAL DEBT: Incurrence of additional debt, beyond the additional $65 million anticipated, without stability in financial resources or net operating income, could negatively pressure the rating.

OPERATING STABILITY: Rating stability assumes management's continued ability to realign expenses, as necessary, to deal with current enrollment and revenue fluctuations.

CREDIT PROFILE

ERAU was established in 1926 as an independent, non-profit, co-educational university. It is the world's oldest and largest university specializing in aviation and aerospace engineering and is accredited by the Southern Association of Colleges.

ERAU has traditional, residential campuses in Daytona Beach, Florida (Daytona), and Prescott, Arizona (Prescott). ERAU's Worldwide campus (WWC) provides educational opportunities to working adults at more than 150 locations in the U.S., Europe, Asia and the Middle East. In addition, WWC students are largely military/veteran and its degree programs can be pursued via the Internet through WWC online.

LARGELY STABLE ENROLLMENT

ERAU relies heavily on student-generated revenues with enrollment growth in recent years fueling financial gains. Despite essentially flat full-time equivalent (FTE) enrollment growth in fall 2014, between fall 2009 - 2014 total FTE's increased 11.5% (to 17,250) largely due to FTE growth at the two residential campuses. The fall 2014 freshmen class for these campuses grew a significant 23.7% to 1,722.

WWC's FTE enrollment of 9,958 comprises a large portion (58%) of ERAU's total FTE enrollment, with a significant 87% contributing to graduate FTEs. WWC's growth in recent years is attributed to improved program accessibility, targeting working adults and military personnel in varied locations. However, most recently, WWC FTE's were down 3.4% for fall 2013 (latest available). According to management, military enrollments were temporarily curtailed as a result of a federal government shut down which sequestered all military tuition assistance for multiple academic terms.

Overall, Fitch views ERAU's demand flexibility as relatively sound due to its unique niche, large distribution network and advanced job placement which should continue to drive demand and minimize student enrollment volatility.

CONSISTENTLY POSITIVE OPERATIONS

ERAU's operating performance remained strong in fiscal 2014. The university generated a 5.8% operating margin, reflecting improvement over the prior year results (4.3%). Positive results continue to increase the university's overall financial flexibility. Over the last five years, ERAU's operating margin averaged 6.8%. The sustained track record of positive operations with surpluses that supplement balance sheet resources is consistent with Fitch's expectation for an 'A' category rated private university.

GROWING BALANCE SHEET RESOURCES

ERAU's operating health continues to bolster its financial resource base to a level consistent with the rating category. Available funds (defined by Fitch as cash and investments not permanently restricted) grew 40.8% from fiscal 2010 to fiscal 2014, reaching a record high in fiscal 2014 ($208.3 million). Available funds provides adequate coverage (64%) of fiscal 2014 operating expenses ($323.7 million), which is slightly below Fitch's median for an 'A' rated private institution; relative to leverage, however, available funds is a solid 94% of pro forma long-term debt.

CASH FLOWS SUPPORT CAPITAL PLANS

Fitch expects future operating surpluses will be offset by the use of reserves to fund capital projects. ERAU's five year-capital improvement plan through fiscal 2019 includes approximately $168 million for major facilities projects, of which $66 million will be used to build a new student union, and approximately $60.4 million for current projects still pending approval, including two new residence halls at each of the residential campuses and an advanced aerodynamics lab at the Daytona campus. These projects are expected to be funded with a combination of internal resources and approximately $60 to $65 million in additional debt.

ERAU's internal cash flow projections reflect a decrease in year-end cash balances of $3 million in fiscal years 2015; however, available funds are not expected to be significantly impacted thereafter. Fitch will continue to monitor ERAU's ability to maintain relatively consistent available funds to support stabilization in liquidity ratios.

INCREASING LEVERAGE

ERAU's maximum annual debt service (MADS) burden is moderately low, at 3.7% of total unrestricted operating revenues in fiscal 2014, and net income from operations support strong MADS coverage of 4.3x, a level consistent with prior years.

Fitch expects debt burden to increase to moderate but manageable levels assuming an estimated $60-$65 million additional debt issuance for the student union project and residential facilities. Additionally, based on pro forma projections provided by ERAU, Fitch also expects net income from operations during the forecasted period would support coverage of pro forma MADS at about 2.9x, which is still adequate for the current rating level.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria' (May 12, 2014);

--'Fitch Upgrades Embry-Riddle Aeronautical Univ, FL Revs to 'A-'; Outlook Revised to Stable' (Dec. 17, 2012).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=929756

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