California baptist university
A GROWING CAMPUS
California Baptist University (CBU), located in Riverside, California, is a private university offering sixteen undergraduate, twelve graduate and three doctoral degrees. CBU, founded in 1950, has undertaken dramatic growth during the past ten years in terms of both enrollment and capital improvements. Enrollment has grown at an annually compounded rate of 10.9% since the 06/07 school year and currently stands at 9,674 students. Capital investments include a newly finished 153,000 square foot basketball and events center, 56,000 square foot School of Business and 95,000 square foot Yeager Center, to name a few. CBU undertook these expansions to accommodate continuing enrollment growth of '8080 by 2020' but have now identified a new enrollment goal of '12,000 by 2025', after having hit their initial goal five years early. CBU benefits from the continued overcrowding at California's public universities. Students within the UC/CSU system are often unable to register for required coursework in time to graduate within the typical four year timeline. While CBU's tuition of $30,000 is higher than many universities within the UC/CSU system, students may save money by graduating within four years versus waiting five to six years at public universities.
Current management is deemed to be adequate. The current President has served since 1994 and can be attributed with much of the growth and investment in recent years. Equus has met with management personally on two separate occasions and held numerous calls in the meantime to discuss current and future capital plans. Off balance sheet CBU related entities have begun purchasing residential apartments surrounding the campus and may do so with additional real estate purchases in the future. While slim, management has built the endowment in recent years, growing the fund from $5 million to $30 million since 2011.
Equus toured CBU in September 2017 and again in March 2018. The campus is located on a continuous square with typical student center, classrooms, coliseum, dormitories and open space. The facilities are in excellent shape as new buildings are being added to the University's portfolio. The campus includes a mix of first year dormitory suites as well as on-campus housing for juniors and seniors. As of March 31st, CBU operated 3,029 housing units with an occupancy of 97.4%. CBU competes in twenty athletic sports primarily at the NCAA Division II level but against PAC 12 schools in some sports. CBU maintains on-campus facilities to accommodate their athletic programs.
Equus originally toured the facility upon bond issuance in 2017 and has taken part in numerous calls with management since. Since tuition accounts for 85 percent of revenues, tracking enrollment headcount is the number one priority. According to management in March 2018, enrollment neared 10,000 and is projected to surpass this milestone for the 18/19 year. Through Q3/18, tuition revenues are ahead of budget at 89% of full year budget figures. The summer semester will help push this figure higher during Q4 to above 100% of budget. Equus will monitor applications and enrollment projections heading into Q1.
Credit Decision and Commentary
CBU operates in a niche market with the advantage of graduating students on time. Strong debt coverage and stable days cash on hand are credit positives. However, leverage has increased to 60% from 49% in 2012. Pro forma, CBU will deleverage as enrollment grows. Equus feels the credit provides adequate compensation at +94bps spread to the 4Y MMD for the 2024 maturity yielding 2.98% on May 23, 2018.
Continued Monitoring Factors
Tuition revenues drive the profitability of CBU. The success of CBU and timely payment of debt service depends on the maintenance of stable enrollment. We will continue to speak with management to gauge their appetite for growth via debt. Borrowing to grow non-educational amenities, while a reality in today's education system, could hinder the credit's operational efficiency in Equus' view.
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