UNIVERSITY WILL HAVE $1.2 BILLION OF RATED DEBT OUTSTANDING ($1.2 BILLION ASSUMING FULL ISSUANCE OF COMMERCIAL PAPER); INCLUDES DEBT OF UNIVERSITY GATEWAY CORPORATION AND STATE GENERAL OBLIGATION BONDS ISSUED ON BEHALF OF UNIVERSITY
New York, September 26, 2011 -- Moody's Rating
Issue: General Obligation Taxable Bonds, Series 2011C;
Rating: Aa1; Sale Amount: $22,715,000;
Expected Sale Date: 9/27/2011; Rating Description: Public
Higher Education Revenue
Opinion
Moody's Investors Service has assigned an Aa1 rating to the University
of Minnesota's (University) General Obligation Bonds, Series 2011C.
The rating outlook is stable. At this time, we are also affirming
the Aa1 ratings on the University's outstanding long-term debt
and the P-1 ratings on the commercial paper notes, as noted
in the RATED DEBT section of this report. Moody's also maintains
ratings on debt of the University Gateway Corporation that is guaranteed
by the University of Minnesota Foundation (rated Aa1). See RATED
DEBT for information on specific debt series.
SUMMARY RATING RATIONALE
The Aa1 rating reflects the University's strong student and research market
positions, overall favorable resources cushioning debt, and
favorable operating performance offset by declining state demographics
and modest liquidity. The stable rating outlook reflects expected
minimal near-term financial resource growth from balanced operating
performance bolstered by investment returns and continued favorable fundraising,
no other anticipated debt issuance other than that described, continued
favorable student demand, and research activity.
STRENGTHS
*Strong market position as Minnesota's flagship research university
and Big Ten member, with enrollment for Fall 2010 of over 61,100
FTEs and total research expenses of $632 million for FY 2010,
up from $600 million in FY 2009.
*Overall favorable balance sheet resources, with expendable
and total financial resources of $2.0 billion and $3.0
billion, respectively, providing good coverage of proforma
debt, with expendable resources cushioning debt 1.7 times.
*Balanced operating performance and positive cash flow generation
from a well diversified revenue base, with three-year average
operating margin of -0.1% and a favorable 1.7%
for FY 2010, operating cash flow margin of 8.9% and
average debt service coverage of 2.5 times.
*Sufficient self-liquidity or use of bank facilities to support
variable rate bonds and commercial paper (see SHORT-TERM RATING
RATIONALE).
CHALLENGES
*Substantial illiquid investments, including nearly 40%
of the University's consolidated endowment fund in private equities.
Monthly liquidity is relatively low for the Aa1 rating at $684
million or 92 monthly days cash for FY 2010, although improved from
the $594 million and 81 monthly days cash reported for FY 2009.
*Debt structure with a 25% demand debt exposure through outstanding
University commercial paper supported by self-liquidity,
although substantially lower than levels in 2010 following the refunding
of variable rate debt earlier this year. Demand debt includes variable
rate debt guaranteed by University of Minnesota Foundation supported by
bank facilities.
*Budgeted state operating support that will constrain operating revenues
and performance, with a budgeted 7.8% reduction ($46
million) in state funding in FY 2012 offset by revenue growth from tuition
and gifts.
*Further increase in leverage, with an expected $65 million
of new money issuance expected in FY 2012 to fund a number of capital
projects and an additional $60 million in FY 2013 for student housing.
Outlook
The stable rating outlook reflects expected minimal near-term financial
resource growth from balanced operating performance bolstered by investment
returns and continued favorable fundraising, no other debt issuance
other than that described, continued favorable student demand and
research activity.
WHAT COULD MAKE THE RATING GO UP
Substantial financial resource growth with manageable additional further
debt issuance; further strengthening of student demand with continued
strong enrollment in out-of-state enrollment and growing
net tuition revenues; continued fundraising success; growth
in research funding.
WHAT COULD MAKE THE RATING GO DOWN
Decline in unrestricted liquidity or delay in state appropriation payments
that stresses liquidity; significant increase in the University's
leverage position through increase in debt and diminishment of financial
resources; operating deficits and deterioration of student demand.
PRINCIPAL 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
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 credit 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 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 Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Diane F. Viacava
VP - Senior Credit Officer
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
Leah Ploussiou-Chatzigiannis
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 Aa1 RATING TO UNIVERSITY OF MINNESOTA'S GENERAL OBLIGATION BONDS, SERIES 2011C; OUTLOOK IS STABLE
