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The Handbook of Municipal Bonds by FRANK J. FABOZZI, SYLVAN G. FELDSTEIN

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CHAPTER 66
How to Analyze Higher Education Bonds
Bradley D. Mincke Vice President-Senior Fixed Income Analyst Van Kampen Investments
 
 
 
Higher education bonds are issued by public and private colleges and universities for the construction or renovation of academic buildings, student housing, recreational facilities, libraries, student unions, administrative buildings, and to purchase land. The bonds can be secured by a general obligation of the institution, specific student fees, or the revenues of a particular project. The schools range in size from less than 1,000 students to several hundred thousand students for a state university system. Credit ratings vary in quality from nonrated to triple A. Degrees and programs offered differ from a single focus mission to comprehensive academic programs. Providing access to quality education with pressure to limit tuition increases and produce favorable financial performance is the challenge of every college and university, regardless of size, reputation or credit rating.
In evaluating the credit quality of higher education institutions and their ability to repay debt, it is necessary to understand the school’s mission, governance, degrees and programs offered, student demand, enrollment, revenue sources, fundraising abilities, and debt management. It is important to use a broad spectrum of financial and demand ratios. Ratio analysis provides a means of determining how well an institution is performing relative to itself over time and ...

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