Fitch Ratings last week revised its outlook to negative from stable on Xavier University, a 180-year-old, private Jesuit institution based in Cincinnati. The agency affirmed its A-minus rating on the school.

Xavier University has $101 million of outstanding bonds — half of which are in variable-rate mode — issued by the Ohio Higher Educational Facility Commission in 2008 and 2010.

The negative outlook revision reflects weakening operating performance, driven in part by lower than expected enrollment and higher student aid needs, as well as exposure to market volatility from its high amount of variable-rate debt, analysts said. The university's institutional aid grew to its highest level in fiscal 2012, and led to a 3.7% decline in net tuition revenues.

"The inability of Xavier to maintain positive operations in future years that will allow it to preserve and grow its balance sheet may yield negative rating pressure," analysts warned.

"Management is aware of the potential impact of increased institutional aid on operations in future years and is taking required action," analysts said in the rating report. The school hopes to increase tuition revenue by increasing recruiting, offering new programs and other initiatives. The measures are expected to generate $20 million in new revenues over the next five years.

Most of the roughly $50 million of variable-rate debt is hedged by an interest-rate swap. "Fitch believes the university's aggressive debt profile continues to present credit risk," analysts said. But they noted that the school's move last year to diversify its letter-of-credit banks is a positive.

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