University will have $856 million of pro-forma rated debt
New York, November 01, 2012 --
Moody's Rating
Issue: Revenue Bonds, Series 2012A; Rating: A3;
Sale Amount: $97,000,000; Expected Sale
Date: 11/29/2012; Rating Description: Revenue:
501c3 Unsecured General Obligation
Issue: Revenue Bonds, Series 2012B (Taxable); Rating:
A3; Sale Amount: $25,000,000; Expected
Sale Date: 11/29/2012; Rating Description: Revenue:
501c3 Unsecured General Obligation
Opinion
Moody's has assigned an A3 rating to University of Miami's (UM) Series
2012A and Series 2012B (taxable) fixed-rate Revenue Bonds.
The Series 2012A bonds will be issued by the Miami-Dade County
Educational Facilities Authority. We have affirmed the A3 rating
on the university's outstanding debt. The outlook is stable.
SUMMARY RATING RATIONALE:
The A3 rating reflects the university's healthy student market as a comprehensive
private research university located in South Florida with consistently
strong fundraising and a largely fixed rate debt structure. These
credit strengths are offset by challenges including significant healthcare
exposure (3 owned hospitals, outpatient centers, and a large
faculty practice plan), weakening of operating performance at the
medical enterprise requiring significant expense containment at the medical
school including recent layoffs, thin liquidity relative to expense
base, and a large unfunded pension liability depressing net assets.
STRENGTHS
*Healthy student market position and research profile as an urban
comprehensive university, with 15,613 full-time equivalent
students enrolled in fall 2012 (approximately two-thirds undergraduate)
and $233 million of research expenses in FY 2012 (per audit).
Net tuition per student is high at $28,170 in FY 2012,
partly attributable to the sizeable graduate and professional student
population, including medical, law and business schools.
*Largely fixed-rate debt structure. The university has
only one small interest rate swap agreement ($6 million swap liability
in FY 2012).
*Strong fundraising success, with $106.7 million
of average annual gift revenue in FY's 2010-2012. The university
has announced the launch of its Momentum2 comprehensive capital campaign
with a $1.6 billion campaign goal.
*Slowed capital and borrowing plans in recent years in response to
the challenged economy. Prior to the Series 2012 bond issuance,
the university's last issuance of long-term debt was in 2008 to
purchase a hospital. Pro-forma operating leverage is manageable
at 38% pro-forma debt-to-revenue in FY 2012.
Age of plant remains relatively healthy at 8.9 years for UM (compared
to 11.76 years for the A-rated private university median
in FY 2011).
CHALLENGES
*Weakening of operating performance at the medical enterprise (0.5%
operating deficit and a weak 6.3% operating cash flow margin
in FY 2012 for the whole university) requiring extensive expense cuts
including layoffs totaling close to 5% of university staff during
FY 2012 and 2013.
*Significant health care exposure, with ownership of three hospitals
as well as a large faculty practice plan (951 physicians). The
university's exposure to Jackson Memorial Hospital, a financially-struggling
Miami-Dade County owned hospital, continues to be a credit
challenge. In FY 2012, consolidated patient care-related
revenues represented 51% of UM's operating revenue.
*Financial resources providing thin coverage of a very large expense
base ($2.4 billion of expenses in FY 2012). In FY
2012, the ratio of expendable financial resources to operations
is modest at 0.1 times, and unrestricted monthly liquidity
of $611 million would provide 97 days cash on hand.
*Large unfunded pension liability. Although the defined benefit
pension plan was closed to new participants in 2007, the unfunded
obligation remains large, partly due to past investment losses and
a lower discount rate. A small number of higher education institutions
have defined benefit pension plans, with most pension plans structured
as defined contribution plans.
Outlook
The stable outlook is based on our expectation that UM will maintain a
healthy student market and strong fundraising. We expect operating
performance will continue to strengthen, in particular reflecting
management's efforts to contain expenses and a focus on longer-term
targets for health care operations improvement.
WHAT COULD MAKE THE RATING GO UP
Significant growth of unrestricted liquidity coupled with improved operating
cash flow and maintenance of strong student market and research positions
WHAT COULD MAKE THE RATING GO DOWN
Significant additional borrowing absent growth of financial resources
and cash flow to cover new debt service; material reduction in liquidity
or cash flow levels; sustained weak operating cash flow
RATING METHODOLOGY
The principal methodology used in this rating was U.S. Not-for-Profit
Private and Public Higher Education published in August 2011. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
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this announcement provides relevant regulatory disclosures in relation
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this announcement provides relevant regulatory disclosures in relation
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Kimberly S. Tuby
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
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Dennis M. Gephardt
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Moody's assigns A3 rating to University of Miami's (FL) $122 million series 2012A and 2012B (taxable) revenue bonds and affirms outstanding ratings; outlook is stable
