DALLAS - Standard & Poor's revised its outlook to negative May 30 on Texas Lutheran University, a private liberal-arts college near San Antonio.
"The negative outlook reflects our view of TLU's continued weak operations and decline in net tuition revenue in fiscal 2013 and a deficit on a full-accrual basis," said Standard & Poor's analyst Robert Dobbins.
Although Texas Lutheran's operating deficit in fiscal 2013 was lower than in the prior year, university officials project the deficit will worsen in fiscal 2014 despite a 5% across-the-board expense reduction.
"We believe the demand profile is weak and is being pressured due in part to competition for students, resulting in an increase in the tuition discount rate," Dobbins said. "Furthermore, the university has significant capital needs during the next several years, which management plans to fund through philanthropy and endowment spending."
The university's financial resources "remain strong for the rating category," Dobbins said, "but we anticipate some weakening over time as a result of an increase in the endowment draw."
Texas Lutheran issues debt through the Seguin Higher Education Authority.
Located in Seguin, 35 miles east of San Antonio, Texas Lutheran has about 1,400 students.
TLU had only $28 million of total debt outstanding as of May 31, 2013.
The university's $10 million series 2013 bonds were issued to refund most of the series 2004 bonds. All debt is fixed rate and is secured by the general obligation of the university.
Debt service is relatively flat around the maximum annual debt service (MADS) of $2.2 million that occurs in fiscal 2014, according to S&P. However, a bullet of $7.4 million occurs in 2024. Debt service thereafter declines through maturity.
"We view the 4.4% MADS burden, excluding the bullet, as average," Dobbins noted. "We understand that management has no plans to issue additional debt beyond drawing on a $5 million line of credit to fund the athletic facility construction while awaiting fundraising collections."
