PHOENIX - Arizona State University's "strong culture of innovation" should translate into improved credit quality over time, Moody's Investors Service said in a new report.
Moody's affirmed ASU's system revenue bond rating at Aa3 last month but changed the outlook from stable to positive, meaning an upgrade could occur in the next 12-24 months.
The university, with its main campus in Tempe, just outside Phoenix, is one of the largest in the country by enrollment and had about $1.3 billion of outstanding senior obligations as of its 2014 annual financial data filed to EMMA.
ASU is in an "excellent strategic position," Moody's said in Thursday's report.
"ASU's strongest enrollment growth is occurring in online programs, though traditional on-campus enrollment is also increasing," Moody's said. "Over the last 10 years, enrollment has grown by 56% to 88,742 full-time equivalent students in fall 2015."
Revenue growth spurred by rising tuition receipts provides ASU with the funds to make long-term strategic investments, the rating agency's analysts found.
"ASU's extraordinary net tuition revenue growth (60% from fiscal year 2011 to 2015) is expected to continue," Moody's said. "Over a decade of success diversifying student revenue and growing new lines of business underpins ASU's momentum."
ASU has also been successful in fostering new business relationships, Moody's said.
The Starbucks College Achievement Plan, for example, provides eligible students with full tuition support to complete ASU on-line undergraduate degrees. By 2025, Starbucks has projected an investment of up to $250 million for over 25,000 students to complete their degrees at ASU. The university has also partnered with the Mayo Clinic for a new medical school, expected to open in 2017.
Moody's also lauded ASU's moves to offset the risks inherent in the school's rapid expansion, including building up reserves, changes to employment models, and its use of third-party funding for residential facilities.
"Over the past five years, the university has retained as operating reserves a portion of the $1.3 billion of cumulative operating cash flow generated over this time period," Moody's said. "With projected strong operating performance, this trend is expected to continue. Favorably, growth in reserves has exceeded growth in expenses, as the university's reserves and endowments have historically been relatively modest given its size and scale."
Spendable cash and investments grew by nearly 50%, to $1.2 billion in fiscal 2015, and now cover 7.6 months of operating expenses, compared to 6.4 months of expenses in fiscal 2011, Moody's said.
Other positives in the report include the school's diverse degree offerings and student population, which leads both to longer term greater enrollment stability, as well as stronger net tuition revenue growth from non-resident students.
Non-resident students made up 45% of ASU's over 91,000 headcount students in fall 2015 compared to 27% in fall 2010.
