California lutheran university
nestled in the hills of thousand oaks
California Lutheran University (CLU), located in Thousand Oaks, California, is a private university offering undergraduate and graduate degrees. CLU, founded in 1959, has experienced flat enrollment growth since FY 12/13 growing only 15 bps annually to 4,236 headcount for the FY 17/18 school year. The University has offset stagnant enrollment growth by increasing tuition annually from 3.5 to 4.8 percent. Net tuition revenues of $77 million accounted for 70 percent of operating revenues and were +0.36% over fiscal year 15/16. CLU is supported by a growing cash balance and endowment, both nearly doubling since FY 12/13. CLU utilizes 3.5 to 4 percent of the endowment (currently at $98m) for operations of the university. CLU 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 CLU's tuition of $41,000 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. CLU will use the 2018 issuance to refinance existing debt as well as construct a $15 million, 47,000 square foot science building. CLU has conveyed no major expansions are planned at the University at this time.
Current management is deemed to be adequate. The current President has served since 2008 and can be attributed with much of the growth and investment in recent years. While slim compared to larger, state schools, management has nearly doubled the endowment in recent years, from $50 million to $98 million since 2010. Private gifts, investment gains and an annual 3.5 percent draw from the endowment accounted for nearly 8 percent of revenues in 2017. Inability of management to maintain fundraising momentum or a reduction in investment and endowment income due to a downturn in financial markets would narrow profitability margins at CLU.
The 225-acre campus originally opened in 1961 is located in Thousand Oaks in Ventura County. The campus is split into two adjacent sectors. On the north is the sports and athletic facilities for their NCAA D-III teams. On the south there are nearly 900,000 sq. ft. stretched across 47 buildings. Since 2009, CLU has built 9 new facilities that include dining halls, social science building, residence halls and a sports facility. Additionally, CLU manages nearly 1,500 on- and off-campus housing beds for students. CLU merged with Pacific Lutheran Theological Seminary in 2014, expanding its geological footprint to the Berkeley area.
Equus has taken part in numerous calls with the underwriter and intends to visit the campus upon our next research trip to the area. Since tuition accounts for 70 percent of revenues, tracking enrollment headcount is the number one priority. Enrollment has stabilized at 4,100 pupils the past five years after experiences nearly 5 percent annual growth from 2006 until 2012. The university has been able to grow revenues and improve their balance sheet since 2012 by steady tuition increase as well as successful and consistent fundraising.
Credit Decision and Commentary
CLU operates in a niche market with the advantage of graduating students on time. Strong debt coverage and positively trending days cash on hand over 200 are credit positives. Equus deems CLU’s balance sheet strong, as investments and the endowment have doubled over six years and combined equate to 200 percent of pro forma debt outstanding after the 2018 Series settles. At a FTE level, CLU compares positively to other private higher education institutions in CA at only $19k debt-to-FTE.
Continued Monitoring Factors
Tuition revenues drive the profitability of CLU and debt service coverage depends on the maintenance of stable enrollment as well as some fundraising ability. We will continue to speak with management to gauge their appetite for growth via debt. Borrowing to grow non-educational amenities or draws over 5 percent from endowment to run operations could hinder the CLU’s operational efficiency in Equus' view.
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