Enrollment gains help Villanova land a positive outlook

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Villanova University’s higher national academic profile has bolstered the school’s rating position.

Moody’s Investors Service revised Villanova’s outlook for its A1-rated bonds to positive from stable in early November citing the private Catholic university’s momentum, reflecting rising applications. The action affects $253 million of bonds, issued through the Delaware County Authority. It may position Villanova for its first rating upgrade since S&P Global Ratings raised the school to A-plus from A in 2011.

“Through strategic investment, the university has become increasingly more selective while attracting and enrolling students of an even higher quality than in prior years,” wrote Moody’s analyst Christopher Collins in a Nov. 7 report. “These factors have driven steadily increasing enrollment and solid net tuition revenue growth.”

Villanova’s total full-time student enrollment has rose steadily to 10,181 in 2018 from 9,677 in the 2014 fiscal year, according to Moody’s. The university, 14 miles west of Philadelphia in Radnor Township, Pennsylvania, admitted just 29% of freshman applications in 2018, compared with 49% four years ago, while also boasting a strong 96% freshman-to-sophomore retention rate. Collins said Villanova’s ability to increase its selectivity and enrollment is important given that net student revenues account for around 77% of the university’s total operating revenue, which was $486 million in 2018.

“These favorable trends, along with stable enrollment and ongoing pricing flexibility, will continue to support favorable net tuition revenue growth,” said Collins. “Leveraging its strengthening brand, Villanova has executed a strategy of gradually increasing enrollment while improving student quality and selectivity.”

Villanova is arguably best-known for basketball, capturing the NCAA's men's basketball championship, three times, most recently in April, when it claimed its national title in three years.

Moody’s released a report after Villanova's 2016 championship, saying NCAA basketball success nets significant media exposure that often results in increased applications, higher net tuition revenue and greater fundraising.

“A national championship win in a major sport such as basketball is always helpful for generating brand awareness and interest in a school,” said Municipal Market Analytics analyst Lisa Washburn. “It is helpful in generating excitement among prospective applicants and often raises applications incrementally.”

Washburn added that while increased applications and fundraising have been important in Villanova’s rise, a change in admissions policy to include an early decision option is also crucial. She said the more colleges can fill up their freshman classes with early decision applicants who are bound to attend if accepted, the less spots they need to fill in the spring.

“Early decision is a good way to increase selectivity and yield metrics through acceptance of a higher percentage of the early decision applicants that are bound to attend the school if accepted,” said Washburn. “Also, since early decision means that financial aid packages can’t be compared it can be helpful on a net tuition basis.”

Villanova Executive Vice President Kenneth Valosky said the early decision program has produced positive results since implementation last year, but is too soon to determine how it will impact the school long-term. He said helping the rise in early decision applicants and Villanova being classified in 2016 as a doctoral research university, which moved it from the regional to the national category in the U.S. World & News Report’s annual college rankings where it now tied for 49th.

“The early decision change has increased yield for the school because the kids are expressing a more firm interest,” said Valosky. “It has improved the school’s competitive position.”

Collins noted that Villanova’s strengthened competitive position was aided by a recent comprehensive fundraising campaign netting more than $760 million that was well above the university’s original $600 million goal. The campaign helped the university tackle capital projects without taking on new debt, including a $60 million performing arts center that is entirely donor funded. The university also improved its alumni giving rate to 30%, from 18% at the start of the campaign in 2014, according to Valosky.

“The capital campaign was incredibly important in terms of funding capital needs of the university,” said Valosky. “It sets the stage for our next strategic plan.”

Villanova’s strong financial health highlighted by Moody’s includes monthly liquidity during the 2018 fiscal year of $460 million, which provides for 419 days of cash on hand. The university’s debt is all fixed-rate, which Collins said provides predictable annual costs. Its debt amortization is considered “relatively aggressive” with about 57% of outstanding principal paid off over the next decade.

“Our debt is very front-loaded,” said Valosky. “We believe in paying it off as quickly as possible.”

Moody’s said that Villanova could receive an upgrade with a continued increase in financial reserves relative to debt and operating expenses along with an ongoing strengthening student market that results in favorable net tuition revenue growth. Villanova’s operating revenue grew 7.2% from 2017 to 2018, which is above the 2.6% average for Moody’s A-rated colleges.

Valosky said no near-term borrowing is on the horizon, but bonds could play a role in funding future capital projects that Villanova may decide to tackle when the university next implements a long-range strategic plan.

He said the university has maintained sound financial practices throughout its rise to assure that operating costs are sustainable and hopes this fiscal discipline gets rewarded by rating agencies. S&P, which already has a positive outlook on Villanova bonds, is also conducting a new review of university finances.

“The story of Villanova is a great story to tell and we look forward to sharing it,” said Valosky. “The university is solidly positioned as a national Catholic university to meet today’s demands in higher education.”

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