Fitch Ratings assigns an 'AA-' rating to the approximately $22,980,000 of Montgomery County Revenue Authority Lease Revenue Bonds, Series 2008A issued on behalf of the Montgomery College Foundation for the benefit of Montgomery College (the college). The bonds are scheduled to be sold competitive or negotiated the week of November 3rd. Fitch also affirms the 'AA-' rating on the college's $33 million of outstanding lease revenue bonds, series 2005A. The series 2008A bonds are secured by a pledge of transportation fee revenues, while the series 2005A bonds are secured by facility fee revenues. Additional security will be provided in the form of a leasehold mortgage over the new parking garage to be constructed and a debt service reserve fund. The Rating Outlook is Stable.
The 'AA-' rating reflects the college's sound liquidity, solid student demand; strong financial support received from Montgomery County and the State of Maryland (the general obligations of both are rated 'AAA' by Fitch); its low debt burden; and the integral role the college plays in the community development of Montgomery County. Credit concerns include the college's limited liquidity; weak operating margin; and additional capital needs, although the majority of the college's capital projects are jointly funded by the County and the State.
While the college's liquidity levels remain a key credit strength, with $59 million of available funds in fiscal 2008, Fitch notes that the negative operating margins for the past four fiscal years have restricted growth of the college's liquid assets. Acknowledging that the negative operations are due in part to a number of internally financed projects, Fitch expects the college to move toward break-even operations going forward. Although remaining negative, the college's unaudited operating margin in fiscal 2008 was an improved negative 3.5%, compared to its negative 6.1% margin posted in fiscal 2007.
The college's headcount enrollment increased 4.25% to 23,866 in fall 2007 from 22,893 in fall 2006. Enrollment is projected to grow 11% over the next ten years. Enrollment growth has been driven by the college's program offerings, some of which are unique for a community college; growth in adult continuing education programs; and Maryland's growing student population coupled with limited capacity at certain University System of Maryland institutions.
Reflecting its integral position in Maryland's higher education system, the college receives significant financial support from the County and State to fund operations and capital projects. State and local appropriations increased 12.7% in fiscal 2008 to $143.7 million from $127.4 million in fiscal 2007. Appropriations represents the college's largest revenue source; 58.8% in fiscal 2008. Additionally, the college received $45.4 million in capital appropriations in fiscal 2008. While, the college does not anticipate reductions to State and local funding in the near term, it expects annual funding to increase at a slower pace in light of the current economic environment.
The pledged revenues are held in the college's Transportation Enterprise Fund and include student transportation fees, faculty parking fees, parking fines, and interest earned on the fund. The student transportation fee is $4 per credit hour and charged to all students. Student transportation fees alone totaled $1.9 million in fiscal 2008 based on 472,984 credit hours, providing 1.2 times (x) coverage of the series 2008A bonds' $1.6 million maximum annual debt service (MADS). Total Transportation Enterprise Fund revenues were $2.4 million in fiscal 2008, increasing MADS coverage to 1.5x. Total MADS, inclusive of the series 2008A and series 2005A bonds, is approximately $4.0 million. Due to the significant support received from the County and State to fund capital projects, the college maintains a low debt burden, with MADS representing a low 1.6% of revenues in fiscal 2008.
Montgomery College is a two-year community college with campuses located in Takoma Park, Rockville, and Germantown, Maryland. Proceeds of the series 2008A bonds will be used to finance the construction of a parking garage on the Takoma Park/Silver Spring campus, fund a debt service reserve fund and capitalized interest fund, and to pay various costs of issuance.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Colin Walsh, 212-908-0767
Mary
Catherine Messner, CFA, FRM, 212-908-0738
or
Media Relations:
Cindy
Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
