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Rating Action:

Moody's assigns Aa3 underlying ratings to the University of Georgia Athletic Association Series 2003, 2005A and 2005B revenue bonds in conjunction with planned letter of credit substitutions; outlook is stable

Global Credit Research - 30 Nov 2012

Association has $119 million of rated debt

New York, November 30, 2012 --

Moody's Rating

Issue: Revenue Bonds (University of Georgia Athletic Association Project), Series 2003; Rating: Aa3; Sale Amount: $36,000,000; Expected Sale Date: 8/28/03; Rating Description: Revenue: 501c3 Unsecured General Obligation

Issue: Taxable Variable Rate Revenue Bonds (University of Georgia Athletic Association Project), Series 2005A; Rating: Aa3; Sale Amount: $17,470,000; Expected Sale Date: 1/27/05; Rating Description: Revenue: 501c3 Unsecured General Obligation

Issue: Variable Rate Revenue Bonds (University of Georgia Athletic Association Project), Series 2005B; Rating: Aa3; Sale Amount: $30,000,000; Expected Sale Date: 8/25/05; Rating Description: Revenue: 501c3 Unsecured General Obligation

Opinion

Moody's Investors Service has assigned Aa3 ratings to the University of Georgia Athletic Association (UGAA) Series 2003, 2005A and 2005B revenue bonds previously issued through the Unified Government of Athens-Clarke County, Georgia. The rating outlook is stable. We have also affirmed the Aa3 rating on the UGAA's Series 2011 revenue bonds.

SUMMARY RATING RATIONALE

The Aa3 ratings reflect the close and longstanding relationship between UGAA and the University of Georgia (lease revenue bonds of the University of Georgia Real Estate Foundation rated Aa2 with a stable outlook), the healthy reserve levels and strong operating performance of the association. Offsetting these factors are the potential vulnerability of the athletic revenue sources and $53.5 million of demand debt exposure.

STRENGTHS

*Long history of administering intercollegiate athletics at University of Georgia, the flagship public university in the Aaa-rated State of Georgia, as a non-profit corporation organized in 1928. The association administers the intercollegiate athletic programs for the university, and has a Moody's adjusted revenue base of $95 million in FY 2011.

*UGAA has diverse revenue sources including contributions, Southeastern Conference distributions, ticket sales, student fees, royalties and other revenues. Gift revenue has averaged $24 million annually over the last three years (FYs 2009 through 2011). We expect the market position to continue to aided by longstanding popular support for the Georgia Bulldogs franchise with football-related revenue providing the majority of the association's revenue base.

*Healthy cash reserves with $97 million of monthly liquidity at the end of FY 2011 equating to 514 monthly days cash on hand.

*Strong operating performance aided by prudent budgeting practices and commitment to maintain and build reserves. In fiscal years 2009 through 2011, average operating margin of 18.9% provided 3.2 times pro forma maximum annual debt service. Unaudited reports for FY 2012 show some decline in operating performance as the cash flow margin fell to 10% from a 19% average for the prior three years, but the decline was in part from one time expenditures and investments.

*Limited expected capital needs following recent plant investments with no additional borrowing plans and relatively rapid amortization of debt. Management has signaled it will proceed with potential donor-supported baseball stadium improvements only with cash gifts in hand.

CHALLENGES

*Considerable debt burden with pro forma debt to FY 2011 operating revenues of 1.26 times. Pro forma maximum annual debt service is 12.6% of FY 2011 operations pointing to a need to maintain uncommonly strong cash flow.

*Demand debt exposure and interest rate swaps with pro forma letter of credit backed debt totaling $53.5 million. Prior letter of credit agreements were with Bank of America (rated A3/P-2) and new letter of credit agreements will be with Wells Fargo Bank (rated Aa3/P-1). Monthly liquidity as of June 30, 2012 provides 182% coverage of demand debt.

*Athletic system net revenues at any higher education institution are prone to greater variability because revenue is based on demand for ticketed events, coach compensation commitments, athletic conference distributions, as well as potential for National Collegiate Athletic Association (NCAA) penalties.

*Ongoing need to invest in capital facilities to remain competitive with athletic opponents could lead to additional debt over time.

Outlook

The stable outlook for the University of Georgia Athletic Association is based on expectations of a continued healthy relationship with the University of Georgia, healthy reserves relative to debt and operations, and sound operating performance. Changes to the university's other ratings or outlook could impact the rating and outlook for the UGAA bonds.

WHAT COULD MAKE THE RATING GO UP

Improved credit quality of the University of Georgia coupled with significant growth of financial resources and reduction of leverage.

WHAT COULD MAKE THE RATING GO DOWN

Material change in the relationship between UGAA and the University of Georgia; deterioration of the University of Georgia's other component unit debt ratings or outlook; material decline in operating performance or debt service coverage at UGAA; penalties or sanctions from the NCAA.

PRINCIPAL RATING METHODOLOGY

The Rating was assigned by evaluating factors believed to be relevant to the credit profile of the issuer, such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the issuer's management and governance structure related to payment. These attributes were compared against other issuers both within and outside of the obligor's core peer group and the rating is believed to be comparable to ratings assigned to other issuers of similar credit risk.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 are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Dennis M. Gephardt
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Erin Veronica Ortiz
Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Aa3 underlying ratings to the University of Georgia Athletic Association Series 2003, 2005A and 2005B revenue bonds in conjunction with planned letter of credit substitutions; outlook is stable
No Related Data.

 

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