Sector Profiles
Higher Education / Private Colleges and Universities
ACA Capital insures bonds issued by Private Colleges and Universities. The institutions we insure demonstrate an ability to attract and retain students over a range of economic and demographic cycles. Adequate financial performance and the flexibility afforded by an acceptable balance sheet are necessary strengths needed to deal with the constantly changing dynamics of higher education. Management will have proven its ability to deal with this shifting landscape.
Key Credit Factors
In order to make a preliminary determination of insurability, ACA Capital will review the College or University for the following key characteristics:
- Enrollment of at least 1,000 students
- History of acceptable demand and retention of students
- History of sound financial operations
- Acceptable balance sheet as measured by (1) liquidity; and (2) flexibility afforded by endowment fund
- Management's ability to deal with historic and projected changes in economic and demographic cycles
Key Legal and Covenant Provisions
Typical security and covenant provisions for ACA Capital insured Private College and University financings include the following:
- Gross Revenue Pledge and/or General Obligation of the Institution
- Mortgage (in certain cases a negative pledge is acceptable)
- Rate Covenant of 1.1x to 1.25x Annual Debt Service
- Additional Debt test provides for historic and projected net revenues equal to at least 1.1x to 1.25x pro forma Maximum Annual Debt Service and/or Maximum Annual Debt Service not to exceed 15% of Gross Revenues
- Unrestricted resources measured as a percentage of outstanding long-term debt and/or as a percentage of expenses must be acceptable
Essential Documentation
The following information is essential for an ACA Capital review of a proposed Private College/University financing:
- Preliminary Official Statement and legal documents prepared for the proposed financing
- Financing plan describing the purpose and size of the proposed debt, sources and uses of funds, and an estimated debt service schedule
- Five years of audited financial statements and current interim financial statements of the institution
- Information on capital campaign goals and achievements
- Ten years of student applications, acceptances, matriculations, head count, FTEs, and degrees granted
- Information on the institution, its history, programs offered, diversity of student body, and marketing strategy
- Information gathered from a site visit by an ACA Capital underwriter
