LOS ANGELES — Moody's Investors Service upgraded University of La Verne, Calif. bond ratings one notch to Baa1, affecting $88.4 million in debt.

The outlook is stable.

The rating agency upgraded the university's series 2005A and 2010A bonds to Baa1 from Baa2.

The university has issued bonds through the California Municipal Finance Authority and the California Educational Financing Authority, according to the Municipal Securities Rulemaking Board's EMMA website.

The upgrade to Baa1 is supported by a combination of continued enrollment and revenue growth, solid cash flow, and material growth in flexible reserves fueled by retained surpluses, Moody's analysts said in a May 14 report.

The stable outlook reflects analysts' expectations that the university will maintain its stable market position and consistently positive operating performance, according to the report.

The private university is located in the Los Angeles suburb of La Verne. Revenue growth, combined with fiscal discipline, analysts said, has led to consistently positive operating performance and growth in flexible reserves.

"These strengths offset the university's leveraged balance sheet, heavy operating reliance on student charges and highly competitive student market, reflected by growth in financial aid and declining freshman matriculation rates in recent years," according to the report.

The fiscal year 2013 operating cash flow margin was 21%, providing a healthy 5.7 times debt service coverage and management reports strong performance for fiscal year 2014, according to the report.

Enrollment growth is diversified across traditional undergraduate, professional, and extended education programs, providing broad stability in the event of a downturn in any single area. Total full-time equivalent enrollment increased by 18% over the last five years to 8,084 in fall 2013.

Net tuition per student increased for the third consecutive year and was $15,589 in fiscal 2013.

The university also has strong flexible reserves equating to 260 monthly days cash on hand provided ample liquidity given positive operating performance and an all fixed-rate debt structure.

Challenges include concentrated revenue as student charges accounted for 92.4% of fiscal year 2013 operating revenue, according to Moody's calculations. There is some reputational risk as the law school was denied accreditation by the American Bar Association in June 2011. Provisional accreditation was restored in March 2012, but future challenges remain, according to the report.

Law school enrollment is down significantly and the university has adjusted its budget to account for this decline in demand; and the new tuition pricing strategy at the law school is untested, according to the report.

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