Medians - US Private Universities Maintain Stability but Pockets of Stress Remain

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1 SECTOR IN-DEPTH Higher Education - US Medians - US Private Universities Maintain Stability but Pockets of Stress Remain TABLE OF CONTENTS Basis for Medians Appendix I: FY FY 2015 Medians Appendix II: FY 2015 Medians by Rating Category Appendix III: FY FY 2015 Medians by Rating Category Appendix IV: FY 2015 Medians by Size of University Appendix V: Ratio Definitions Related Research Consistent operating performance, revenue growth exceeding expense growth, and fortified wealth highlight US private universities' stability in our fiscal year 2015 medians. Pockets of stress remain for some universities, especially for the lower-rated entities, with weaker growth in enrollment and net tuition revenue as well as limited capital investment. Broadly, rated US private universities will maintain financial stability, though a growing number of lower-rated universities with weaker student demand will continue to face more acute stress. Operating performance remains stable for most of the sector as revenue growth outpaces expense growth. Median revenue growth outpaced median expense growth for the second straight year, contributing to continued stability in operating cash flow. While cash flow generation will remain relatively stable across the sector, some universities will continue to struggle. Net tuition revenue growth is constrained for an increasing portion of rated universities. Significant disparities have emerged across the sector in recent years, with lower-rated universities most reliant on student charges increasingly exhibiting weaker pricing power than higher-rated peers. As competition remains intense, increasing numbers of private universities will continue to struggle to grow net tuition revenue. Sector-wide enrollment remains stable, but some colleges are confronting material declines. While median enrollment growth has remained positive over the past five years, enrollment trends vary significantly by rating category with over half of Baa-rated universities experiencing multi-year enrollment declines. Enrollment growth will continue to vary by university as regional demographics, brand, programming, cost, and other factors drive divergent enrollment trends. Multi-year growth in flexible financial reserves enhances sector stability. Rebounding wealth and liquidity since the financial crisis have strengthened university balance sheets, partially mitigating the effects of increasingly strong market competition. However, weaker investment returns in FY 2015 and 2016 will contribute to lower growth in reserves and corresponding stagnation in endowment income Contacts Matthew J Kuchtyak Associate Analyst matthew.kuchtyak@moodys.com Edith Behr VP-Sr Credit Officer/ Manager edith.behr@moodys.com Kimberly Tuby VP-Sr Credit Officer/ Manager kimberly.tuby@moodys.com Andrew S Pfluger Associate Analyst andrew.pfluger@moodys.com Susan I Fitzgerald Associate Managing Director susan.fitzgerald@moodys.com Kendra M. Smith MD-Public Finance kendra.smith@moodys.com THIS REPORT WAS REPUBLISHED ON 14 JULY 2016 WITH A CORRECTED APPENDIX IV: FY 2015 MEDIANS BY SIZE OF UNIVERSITY

2 Wealthier universities increase capital investment while lower-rated universities significantly pull back. While most of the sector will continue spending at or above depreciation to replenish plant, continued divergence in capital investment is likely. Underinvestment in plant by lower-rated universities may lead to further market differentiation over the long-run. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Exhibit 1 Operating Cash Flow Remains Stable for Sector Operating performance remains stable for most of the sector as revenue growth outpaces expense growth Source: Moody's Investors Service The median operating cash flow margin across the sector remained strong at 14.6% in FY 2015 and has been stable over the last five years. Operating cash flow will remain steady as most universities continue to match revenue growth with expense growth. Expense containment remains good in a low revenue growth environment. Median revenue growth modestly outpaced median expense growth for the second straight fiscal year. Pockets of operating stress have grown, however, with 23% of universities generating a cash flow margin below 10% in FY 2015, up from 14% of universities in FY We project 3%-4% aggregate growth in revenue and expenses in FY 2016, albeit with significant variance across the sector. Exhibit 2 Net Tuition Revenue Growth Constrained for More Universities Percent of private universities by annual net tuition revenue growth Sources: Moody's Investors Service; Moody's Investors Service estimate 3 Net tuition revenue growth is constrained for an increasing portion of rated universities Across the sector, 27% of universities experienced declining net tuition revenue in FY 2015, a number that we expect to increase to approximately 30% in Furthermore, 52% of universities failed to grow net tuition revenue above 3%, our proxy for inflation. We expect the number to increase to nearly 60% in Comprehensive private universities with the strongest brands had the highest net tuition revenue growth in FY 2015 with nearly 70% growing at or above our 3% inflation proxy, compared to only 41% of small private universities hitting that target. 42% of Baa-rated universities had net tuition revenue declines in This is particularly noteworthy given their high 85% median reliance on student charges as a percent of overall operating revenue. Net tuition revenue growth will continue to slow for an increasing portion of rated private universities as competition remains intense.

4 Exhibit 3 Enrollment Pressure Primarily at Lower-Rated Universities Percent of private universities by five-year change in total FTE enrollment Sector-wide enrollment remains stable, but some colleges are confronting material declines Median total FTE enrollment has been stable across the sector, with variations in enrollment growth by rating category. Only one Aaa-rated private university had lower enrollment in fall 2015 than in fall 2011, while 58% of Baa-rated universities had lower enrollment over the same period. Although enrollment is most pressured at lower-rated universities, some A- and Baa-rated universities are steadily growing enrollment, with 40% and 30%, respectively, increasing total FTE enrollment by 3% or more over the last five years. Enrollment growth will continue to vary by university as regional demographics, brand, programmatic offerings, cost, and other factors drive divergent enrollment trends. Source: Moody's Investors Service Exhibit 4 Improved Wealth Provides Strong Financial Flexibility Multi-year growth in flexible financial reserves enhances sector stability Private university wealth has grown strongly since the financial crisis, with spendable cash and investments a median 60% higher in FY 2015 than in FY Spendable cash and investments now provide a median 1.37 times coverage of annual operating expenses compared to 0.93 times in FY 2009, affording many universities strong financial flexibility. Similarly, growth in liquidity to a median 305 monthly days cash on hand in FY 2015 helps mitigate slow revenue growth or weak cash flow for some universities. While wealth increases in recent years help fortify university assets, weak investment market returns in FY 2015 and FY 2016 will lead to stagnating cash and investments for most universities. Sources: Moody's Investors Service; Moody's Investors Service estimate 4

5 Exhibit 5 Divergence in Capital Investment as Lower-Rated Credits Pull Back Median capital spending ratio by rating category Source: Moody's Investors Service Wealthier universities increase capital investment while lowerrated universities significantly pull back Median capital spending declined moderately for the sector over the last five years, with a median 1.29 times in FY 2015 compared to 1.44 times in FY 2011, driven by a significant decline in capital investment by Baa-rated credits. 58% of Baa-rated and below universities spent less than depreciation in FY 2015, compared to 25% for A-rated and above universities. A material number of universities have deleveraged in recent years, with 44% of universities having less debt in FY 2015 than FY Most of the sector will continue spending at or above depreciation to replenish plant, but lower-rated credits with weaker philanthropy and pressured cash flow will struggle to adequately invest in capital. Basis for Medians The medians are based on an analysis of audited FY 2015 financial statements for 249 US private universities, representing 94% of all rated entities. The median rating is A2. These medians primarily reflect audit year ends of June 30, Ratings are the outcome of a complex process that incorporates a broad variety of quantitative and qualitative factors. As such, there is a wide range of values for individual ratios within each rating category. We do not assign a university s precise rating level simply by comparing its ratios to medians, but rather weigh core credit variables over time as well as in relation to broad variables in the industry. Medians for the private universities as of June 28, 2016 are in the following appendices: Appendix I: FY FY 2015 Medians Appendix II: FY 2015 Medians by Rating Category Appendix III: FY FY 2015 Medians by Rating Category Appendix IV: FY 2015 Medians by Size of University Appendix V: Ratio Definitions Each year, the five-year range for medians is newly computed from a unique set of private universities. The exact set of universities used to calculate the medians in any particular year changes from year to year. Therefore, historical median results are likely to change somewhat from year to year. 5

6 Appendix I: Private College and University Medians FY Year Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) Change in Net Tuition Revenue (%) $108,610 $1,584 $115, $184,534 $275,095 $110,584 $122,701 $125, $118, $14,438 $12,808 $109,474 $2,112 $115, $176,157 $266,802 $107,293 $119,754 $129, $119, $14,311 $13,568 $110,090 $2,166 $119, $203,382 $294,794 $116,685 $133,634 $133,093 $126, $14,563 $14,801 $118,632 $1,892 $122, $243,994 $329,229 $135,782 $143,508 $137,246 $130, $15,815 $15,285 $121,300 $1,439 $128, $232,670 $325,709 $132,732 $149,467 $145, $135, $16,276 $16,398 3, $20, $28, , $21, $29, , $21, $30, , $22, $31, , $22, $32, $67, $66, $73, $82, $83,

7 Year Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) $3, $3, $4, $4, $4, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 7

8 Appendix II: Private College and University FY 2015 Medians By Rating Category Rating Category Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) Change in Net Tuition Revenue (%) 8 ALL[3] 249 Aaa 14 Aa 54 A 101 Baa 66 $121,300 $1,439 $128, $232,670 $325,709 $132,732 $149,467 $145, $135, $16,276 $16,398 $1,573,104 $55,239 $1,695, $8,313,274 $10,235,490 $2,460,680 $4,203,383 $1,942, $1,787, $315,913 $285,183 $248,212 $2,808 $258, $892,918 $1,142,072 $321,247 $381,588 $236, $222, $50,114 $45,634 $127,294 $884 $129,983 - $265,624 $368,977 $140,666 $158,837 $165, $152, $19,078 $17,408 $60,300 $1,157 $66, $76,468 $123,847 $47,447 $49,041 $85, $82, $7,016 $6,882 3, $22, $32, , $23, $88, , $28, $58, , $24, $31, , $19, $24, $83, $1,166, $372, $83, $34,

9 Rating Category Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) ALL[3] 249 Aaa 14 Aa 54 A 101 Baa $4, $24, $12, $4, $1, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. [3] The median sample set of 249 universities include 14 universities with ratings below the Baa category. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 9

10 Appendix III: Private College and University Medians by Rating Category FY Year Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) Aaa $1,056,864 $48,491 $1,082, $6,304,653 $7,463,451 $1,936,585 $2,864,516 $1,643, $1,486, $209,005 $207,845 $1,105,230 $52,846 $1,158, $6,214,087 $7,700,534 $1,949,426 $2,912,199 $1,675, $1,554, $226,004 $229,076 $1,139,533 $55,151 $1,194, $6,820,464 $8,420,338 $2,116,791 $3,368,513 $1,922, $1,628, $220,845 $226,534 $1,336,944 $55,728 $1,392, $7,860,137 $9,763,728 $2,225,133 $3,903,674 $1,974, $1,734, $292,826 $247,822 $1,573,104 $55,239 $1,695, $8,313,274 $10,235,490 $2,460,680 $4,203,383 $1,942, $1,787, $315,913 $285,183 11, $20, $79, , $21,104 $78, , $21, $81, , $23, $87, , $23, $88, $970, $947, $1,044, $1,193, $1,166,

11 Year Change in Net Tuition Revenue (%) Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) Aaa $22, $22, $20, $23, $24, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 11

12 Appendix III: Private College and University Medians by Rating Category FY Aa Year Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) $185,937 $3,366 $195, $680,817 $964,883 $258,518 $337,995 $198, $195, $41,481 $34,519 $217,396 $4,069 $221, $686,131 $952,913 $257,063 $321,535 $204, $202, $35,339 $36,828 $234,083 $3,435 $248, $796,703 $1,038,312 $295,624 $355,019 $210, $211, $39,400 $42,702 $231,490 $3,497 $252, $912,785 $1,142,327 $321,943 $405,448 $217, $213, $45,072 $38,935 $248,212 $2,808 $258, $892,918 $1,142,072 $321,247 $381,588 $236, $222, $50,114 $45,634 3, $24, $48, , $24,779 $50, , $26, $51, , $27, $54, , $28, $58, $304, $294, $323, $364, $372,

13 Aa Year Change in Net Tuition Revenue (%) Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) $9, $9, $11, $11, $12, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 13

14 Appendix III: Private College and University Medians by Rating Category FY A Year Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) $109,407 $1,496 $116, $198,376 $292,356 $124,929 $133,291 $152, $130, $14,885 $13,005 $113,130 $1,812 $119, $192,562 $289,108 $119,217 $132,881 $148, $135, $15,612 $14,670 $119,035 $1,567 $124, $219,669 $326,300 $132,009 $143,771 $158, $142, $15,649 $16,175 $122,970 $1,480 $126, $252,040 $357,976 $140,824 $165,864 $161,642 $146, $16,704 $16,990 $127,294 $884 $129,983 - $265,624 $368,977 $140,666 $158,837 $165, $152, $19,078 $17,408 3, $21, $28, , $22, $29, , $23, $30, , $24, $30, , $24, $31, $66, $67, $73, $82, $83,

15 A Year Change in Net Tuition Revenue (%) Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) $3, $3, $4, $4, $4, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 15

16 Appendix III: Private College and University Medians by Rating Category FY Baa Year Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) $61,161 $1,234 $62, $56,018 $94,941 $39,025 $40,155 $80, $77, $6,570 $4,907 $60,697 $1,518 $64, $55,742 $97,792 $38,533 $39,045 $81, $80, $6,556 $6,157 $62,305 $1,743 $65, $67,920 $108,962 $41,443 $43,278 $80, $78, $5,836 $6,827 $60,092 $1,346 $61, $78,565 $121,904 $47,364 $47,997 $83, $80, $6,849 $7,010 $60,300 $1,157 $66, $76,468 $123,847 $47,447 $49,041 $85, $82, $7,016 $6,882 3, $17, $21, , $18, $22, , $19, $23, , $19, $23, , $19, $24, $27, $26, $29, $34, $34,

17 Baa Year Change in Net Tuition Revenue (%) Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) $1, $1, $2, $2, $1, [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 17

18 Appendix IV: Private College and University FY 2015 Medians By Size of University Rating Category Key Financial Statistics: Total Debt ($000) Other Debt Like Obligations ($000) Total Adjusted Debt ($000) Change in Total Adjusted Debt (%) Spendable Cash & Investments ($000) Total Cash & Investments ($000) Monthly Liquidity ($000) Annual Liquidity ($000) Operating Revenue ($000) Annual Change in Operating Revenue (%) Operating Expenses ($000) Annual Change in Operating Expenses (%) Total Gift Revenue ($000) Three-Year Average Gift Revenue ($000) Market Data and Ratios: Total FTE Enrollment Change in Total FTE Enrollment (%) Total FTE Enrollment that is Undergraduate (%) Primary Selectivity (%) Primary Matriculation (%) Net Tuition per Student ($) Change in Net Tuition per Student (%) Educational Expenses per Student ($) Total Tuition Discount (%) Capital Ratios: Spendable Cash & Investments to Total Debt (x) Total Cash & Investments to Total Debt (x) Spendable Cash & Investments to Total Adjusted Debt (x) Total Cash & Investments to Total Adjusted Debt (x) Total Debt to Cash Flow (x) Total Debt to Operating Revenue (x) Total Adjusted Debt to Operating Revenue (x) Total Debt to Total Capitalization (%) Debt Service to Operating Expenses (%) Variable Rate Exposure - Before Swaps (%) Monthly Liquidity to Demand Debt (%) [1] Annual Liquidity to Demand Debt (%) [1] Capital Spending (x) Capital Expenses to Operating Expenses (%) Age of Plant (Number of Years) Balance Sheet Ratios: Spendable Cash & Investments to Operating Expenses (x) Total Cash & Investments to Operating Expenses (x) Monthly Days Cash on Hand Annual Days Cash on Hand Monthly Liquidity as % of Total Cash & Investments (%) Annual Liquidity as % of Total Cash & Investments (%) Total Cash & Investments per Student ($) Operating Ratios: Operating Margin (%) Three-Year Average Operating Margin (%) 18 Comprehensive Private University 47 Moderate Sized Private University 75 Small Private College 87 $929,323 $61,277 $1,086, $1,817,463 $2,222,218 $888,513 $1,135,929 $1,136, $1,057, $134,128 $116,379 $121,068 $1,824 $121, $161,289 $249,748 $101,431 $110,215 $157, $152, $11,866 $11,627 $67,791 $0 $68, $162,685 $285,452 $77,570 $83,562 $84, $83, $13,225 $14,298 13, $26, $57, , $21, $25, , $20, $38, $185, $46, $140,

19 Rating Category Comprehensive Private University 47 Moderate Sized Private University 75 Small Private College $9, $2, $7, Operating Margin Excluding Gifts (%) Operating Cash Flow Margin (%) Change in Net Tuition Revenue (%) Annual Debt Service Coverage (x) MADS Coverage (x) Three-Year Average Debt Service Coverage (x) Three-Year Average Gifts per Student ($) Research Expense as a % of Total Expenses (%) Return on Net Assets (%) Return on Cash & Investments (%) Contribution Ratios: [2] Tuition & Auxiliaries (%) Investment Income (%) Gifts (%) Grants & Contracts (%) Other (%) Comprehensive Private Universities either have total FTE enrollment greater than 10,000 or greater than 3,000 with 15% of operating revenue from patient care revenue and grants & contracts. Moderate Sized Private Universities have total FTE enrollment greater than 3,000 and less than 10,000 with less than 15% of operating revenue from patient care revenue and grants & contracts. Small Private Universities have total FTE enrollment less than 3,000 with less than 15% of operating revenue from patient care revenue and grants & contracts. We have excluded medians for 40 Specialty Schools (e.g. stand-alone graduate or professional program schools, art schools, single-sex schools, or HBCUs) due to their disparate characteristics. [1] Median values for monthly and annual liquidity to demand debt are derived from only those universities that have at least $1 of demand debt outstanding. [2] Since values represent the median university for each contribution ratio, each individual university's ratios will sum to 100%, but the median values may not total 100%. Medians are based on FY 2015 financial data and fall 2015 enrollment data. Source: Moody's Investors Service 19

20 Appendix V: Ratio Definitions Age of Plant (#, in Years) Provides a rough indicator of institutional deferred maintenance as well as the operating efficiency of the existing plant facilities Accumulated depreciation divided by annual depreciation expense Annual Days Cash on Hand Measures the number of days a university could cover operating expenses Annual Liquidity times 365 divided by Operating Expenses less annual from unrestricted cash and investments that could be liquidated within one depreciation expense and additional, unusually large non-cash expenses year Annual Debt Service Coverage (x) Measures the ability of a university to make debt service payments from annual operations The sum of annual operating surplus (deficit), annual depreciation expense, interest expense, amortization, and additional, unusually large non-cash expenses, divided by principal and interest Annual Liquidity ($) Measures unrestricted cash and investments that can be liquidated within one year Unrestricted operating funds available within one month plus unrestricted operating funds available within one year plus lesser of endowment funds available within one month and endowment funds available within one year or unrestricted board designated net assets and unrestricted working capital (or other unrestricted funds commingled with the endowment) Annual Liquidity as % of Total Cash & Investments (%) Measures the portion of operating and endowment/long-terms accounts that is unrestricted and can be liquidated/spent within one year Annual Liquidity divided by Total Cash & Investments Annual Liquidity to Demand Debt (%) Measures a university's ability to repay its demand debt from unrestricted cash and investments that can be liquidated within one year Annual Liquidity divided by Demand Debt Average MADS Coverage (x) Measures average margin of protection for the maximum annual debt service Three-year average of operating surplus (deficit) plus interest and payment from annual operations depreciation expenses plus additional, unusually large non-cash expenses, divided by the maximum annual principal and interest payment Capital Expenses to Operating Expenses (%) Measures the percent of expenses from capital investment Sum of interest and depreciation expense divided by Operating Expenses Capital Spending (x) Measures the pace of capital investment relative to the annual depreciation Purchases of property, plant and equipment (from statement of cash flows) of assets divided by annual depreciation expense Debt Service to Operating Expenses (%) Measures annual debt service burden on the annual operating budget Annual debt service divided by Operating Expenses Demand Debt ($) Measures the amount of demand debt that may need to be paid from liquid Includes variable rate demand obligations, commercial paper, long mode put investments bonds, amounts outstanding under bank operating lines of credit, bank bonds and bank qualified loans with a demand feature Educational Expenses per Student ($) Approximates the per student cost of a university's educational experience Operating Expenses less research, patient care, and auxiliary expenses divided by Total FTE Enrollment Gifts (% of Total Revenue) Measures reliance on gift revenue as a percent of total revenue Unrestricted gift revenue divided by Operating Revenue Grants and Contracts (% of Total Revenue) Measures reliance on grants and contracts as a percent of total revenue Grants and contracts revenue divided by Operating Revenue Government Appropriations (% of Total Revenue) Measures reliance on government support as a percent of total operating revenue Government operating appropriations divided by Operating Revenue Government Appropriations per Student ($) Compares government support to the size of the student body Government operating appropriations divided by Total FTE Enrollment Investment Income (% of Total Revenue) Reliance on investment income as a percent of total revenues 5% of three year trailing average of cash and investments divided by Operating Revenue MADS Coverage (x) Measures actual margin of protection for the maximum debt service payment from annual operations 20 Annual operating surplus (deficit) plus interest and depreciation expenses plus additional, unusually large non-cash expenses, divided by the maximum principal and interest payment

21 Monthly Days Cash on Hand Measures the number of days a university is able to operate (cover its cash operating expenses) from unrestricted cash and investments that can be liquidated within one month Monthly Liquidity times 365 divided by Operating Expenses less depreciation and additional, unusually large non-cash expenses Monthly Liquidity Measures the amount of unrestricted cash and investments that can be liquidated within 30 days Unrestricted operating funds available within one month plus lesser of endowment funds available within one month or unrestricted board designated net assets and unrestricted working capital (or other unrestricted funds commingled with the endowment) Monthly Liquidity as % of Total Cash & Investments (%) Measures the portion of operating and endowment/long-terms accounts that is unrestricted and can be liquidated/spent within one month Monthly Liquidity divided by Total Cash & Investments Monthly Liquidity to Demand Debt (%) Measures a university's ability to repay its demand debt from unrestricted cash and investments that can be liquidated within one month Monthly Liquidity divided by Demand Debt Net Tuition per Student ($) Measures tuition and fees actually received per student, after scholarships The sum of gross tuition and fees revenue less scholarship discount and allowances less scholarship expense divided by Total FTE Enrollment from the prior year Non-Resident FTE Enrollment (%) Measures the portion of the university s entering class originating from outside the state Number of first year, full-time equivalent students from outside the institution s state divided by total first time, full-time equivalent enrollment Operating Cash Flow ($) Measures the amount of excess cash flow (or deficit) generated from annual Operating Revenue less Operating Expenses, plus depreciation, interest, and operating expenses additional, unusually large non-cash expenses Operating Cash Flow Margin (%) Measures net income (before non-cash expenses) relative to operating Operating Revenue less Operating Expenses, plus depreciation, interest, and revenue to indicate the amount of cash a university generates to support its additional, unusually large non-cash expenses, divided by Operating Revenue strategic and capital investments Operating Expenses ($) Measures size of operating budget Total operating expenses Operating Margin (%) Indicates the excess margin (or deficit) by which annual revenues cover operating expenses Operating Revenue, less Operating Expenses, divided by Operating Revenue Operating Margin Excluding Gifts (%) Measures the university s dependence on gifts to finance annual operations Operating Revenue, less gifts and total unrestricted operating expenses, divided by Operating Revenue less gifts Operating Revenue ($) Indicates the scope of a university's operations Total adjusted operating revenue as stated in audit, plus 5% of trailing average three year cash and investments level, less net assets released for capital and investment income, less realized and unrealized gains or losses. Individual colleges may have other adjustments made to Operating Revenue based on additional information not included in audit Other (% of Total Revenue) Reliance on other revenue as a percent of total revenue Other revenues divided by Operating Revenue Other Debt Like Obligations ($) Measures other debt-like obligations, including capitalized operating leases Capitalized non-cancelable operating leases and unfunded pension and unfunded pension obligations obligations Patient Care (% of Total Revenue) Reliance on patient care (and other health related) revenue as a percent of total revenue Patient care revenue divided by Operating Revenue Primary Matriculation (%) Measures the preference of a student to attend a particular university Number of students enrolling divided by number of applications accepted Primary Selectivity (%) Measures the depth of a university's applicant pool Number of acceptances divided by number of applications Research Expense as a % of Total Operating Expenses (%) Measures annual research expenses relative to the overall operating budget Research expenses divided by Operating Expenses Return on Cash & Investments (%) Measures growth in total financial wealth Percentage change in Total Cash & Investments from the previous year Return on Net Assets (%) 21