RATINGS AFFIRMED ON EXISTING DEBT; UNIVERSITY HAS A TOTAL OF $194 MILLION PRO FORMA RATED DEBT
Board of Governors of the University of NC
General Revenue Bonds, Series 2010A
Expected Sale Date
Public University Revenue
Taxable General Revenue Bonds (Build America Bonds), Series 2010B
Expected Sale Date
Public University Revenue
NEW YORK, Nov 9, 2010 -- Moody's Investors Service has assigned an Aa3 rating to the University of North
Carolina at Charlotte's $40.8 million General Revenue Bonds, Series 2010A and
2010B. The rating outlook is stable. At this time Moody's has also affirmed its
Aa3 ratings on the University's prior General Revenue Bonds listed below under
The Series 2010B bonds will be issued as taxable Build America Bonds. The
University expects to receive a tax subsidy payment from the U.S. Treasury equal
to 35% of the amount of each interest payment on the Build America Bonds. The
subsidy payments will be included in the Available Funds security for the
University's General Revenue bonds.
USE OF PROCEEDS: Proceeds from the Series 2010 bonds will finance i) the
construction of a football competition stadium with approximately 15,000 seats
and related improvements, ii) student athletic field improvements, iii) the
construction of a football practice facility and iv) costs of issuance. There is
no debt service reserve fund.
LEGAL SECURITY AND DEBT STRUCTURE: The General Revenue Bonds are unsecured
obligations of the University, payable from a broad basket of Available Funds,
which includes unrestricted revenues and unrestricted fund balances, but does
not include state appropriations, restricted gifts or student tuition payments.
Available Funds in FY 2009 totaled more than $203 million, which represented 9%
growth over the prior year. The Series 2010 bonds are on parity with the
University's outstanding bonds with $182 million of outstanding General Revenue
bonds. Including the interest rate subsidies, the Available Funds in FY 2010 of
$204 million cover net debt service over 12 times.
DEBT STRUCTURE AND INTEREST RATE DERIVATIVES: None, all of the University's debt
is fixed rate.
*As the fourth largest of the sixteen-member UNC System, UNC-Charlotte has an
established market position with growing enrollment trends and enrollment of
22,286 full-time equivalent (FTE) students in fall 2010 - a 23% increase from
five years prior boosted by the positive demographic trends of the Charlotte
region. In fall 2010, the University experienced heightened demand leading to
improved selectivity of 71.5% with a 37.2% yield on admitted students.
*Historically positive operating performance with three-year average operating
margin of 7.2% and three-year average debt service coverage of 4.4 times (FY
*Healthy financial resource cushion with total financial resources of $273
million at the end of FY 2010 (draft). Expendable financial resources of $201
million cover pro-forma direct debt of $242 million 0.8 times and annual
operating expenses by 0.5 times.
*Satisfactory liquidity and fully-fixed rate debt portfolio. Based on Moody's
methodology for analyzing monthly liquidity, the University held $141 million in
unrestricted monthly liquidity as of June 30, 2010, which translated into a
sound 133 monthly days cash on hand (days cash on hand from investments liquid
within one month).
*Increasing sponsored research activities ($24 million in research expenditures
in FY 2010).
*Significant reduction in state operating support given reduction in state
revenue with an 9% decline in FY 2009 from the prior year (from $175 million to
$160 million) with uncertain outlook when federal stimulus funding expires. FY
2010 operating support was aided by an additional $12.3 million in federal
stimulus funds, with relatively flat funding for FY 2011.
*State's political climate may limit in-state tuition price increases and
tuition price increases by State policymakers as a direct offset to state
general operating appropriations. The estimated cost of attendance for the
2010-2011 academic year is $5,138 for in-state undergraduate students (with 88%
of matriculants from the state of North Carolina in fall 2010), pointing to a
relatively low cost even with likely increases.
*Future enrollment growth will require ongoing capital investments, a portion of
which will likely be funded by debt. Borrowing plans over the next few years
include approximately $93 million for student housing and parking facilities.
Mitigating the impact of additional debt on the risk profile of the University
is the University's conservative, fixed-rate debt structure with relatively
rapid retirement of principal (over $30 million of principal payments schedule
for FY 2011 - 2015).
MARKET/COMPETITIVE POSITION: GROWING ENROLLMENT REFLECTS LONG TERM REGIONAL
DEMOGRAPHIC TRENDS AND PRESENT LOCAL ECONOMIC CHALLENGES
The University of North Carolina at Charlotte enjoys an established
reputation as a regional doctoral/research-intensive university, with its
location in the growing Charlotte metropolitan area. Enrollment growth in recent
years has exceeded projections with management indicating that the University is
ahead of projections to reach total headcount enrollment of 35,000 students by
2020. The University currently enrolls almost 22,000 students on a full-time
equivalent basis, approximately 88% of whom are State residents.
Freshman selectivity at UNCC for the fall of 2010 was 71.5% with yield of 37.2%
and an entering class of 2,990 first time students and 2,467 undergraduate
transfer students. After experiencing heightened demand in fall 2009, resulting
in above budget enrollment growth, university management plans to
moderate growth for the next few years.
In addition to its roughly 1,000 acre campus some 8 miles from
downtown Charlotte, UNCC also offers classes in the central business district of
the city and has received $45 million in state capital support to build a
permanent home there. This new "Uptown" location will cater primarily
to working students and will further the University's mission in meeting the
needs of the Charlotte area labor market. Over the last five years, full-time
equivalent enrollment has grown 23%. Across that same period, graduate
enrollment grew 31% to 3,893 FTE students, pointing to an area of strategic
focus as UNCC adds to its master's and doctoral programs, including those in the
Education, Engineering and Business disciplines.
Sponsored research funding at UNCC continues to increase with
research expenditures of roughly $24 million in FY 2010. The research program
has notable strengths in the areas of engineering, physics and computer security
and expects to benefit from ties to the North Carolina Research Park in nearby
OPERATING PERFORMANCE: HISTORICALLY HEALTHY OPERATING PERFORMANCE PRESSURED IN
FY 2009 AS THE RESULT OF REDUCTIONS IN STATE OPERATING SUPPORT
Moody's expects that despite declines in the University's operating
performance in FY 2009, operations will continue to provide healthy cash
flow relative to debt service. Incorporating the 0.9% operating margin in FY
2009 (draft), the three-year average margin for fiscal years 2008-2010
(including preliminary, unaudited data for FY 2010) was 7.2% as calculated by
Moody's. This strong performance led to average debt service coverage of
As the result of budget cuts at the State level, the University experienced
significant reductions in State operating support in FY 2009 with an 8% decline
in FY 2009 from the prior year (from $175 million to $160 million). State
appropriations were $174 million in FY 2010 with a near flat outlook for FY
2011. In addition to operating support from the Aaa-rated State of North
Carolina, which accounted for 38% of the University's operating budget in 2010
(draft), the University has also benefited from substantial capital support from
the State in recent years as well. The University received $12.3 million in
Federal stimulus funds in FY 2010. Student charges comprised 38% of operating
revenues in FY 2010, while grants and contracts were 14% and investment income
The state's Aaa rating reflects North Carolina's history of conservative fiscal
management, moderate debt levels, and a fundamentally diverse economy that, like
other states, has experienced a slowdown. The rating outlook is stable.
Challenges include managing through the current economic downturn's effect on
the state finances, in light of reduced budget reserve fund levels and job
losses that exceed national averages, reflecting the relatively recent rise of
more volatile financial services employment in the state, as well as its
traditional manufacturing base. For more information on Moody's ratings of North
Carolina, see our report dated September 20, 2010.
BALANCE SHEET PROFILE: HEALTHY FINANCIAL RESOURCE LEVELS AND
MANAGEABLE BORROWING PLANS
Moody's believes that the University's financial position remains sound and
consistent with the long-term Aa3 rating. Total financial resources at the
University and affiliated foundation were $273 million at the end of fiscal 2010
(draft), a 9% increase over the prior year. In FY 2010 (draft), expendable
financial resources covered pro-forma direct debt of $242 million by 0.8 times
and annual operating expenses by 0.5 times (in line with Moody's FY 2009 medians
for Aa3 rated public universities of 0.9 times and 0.5 times).
The fiscal year 2010 financials (draft) reflect investment gains in
the long-term external investment pool of the Foundation and the
University (estimated 10% return for 2010 fiscal year with endowment
investments as of September 30, 2010 allocated 34% to global equity, 21% to
hedged equity strategies, 15% to real assets, 20% to absolute return and credit
strategies, 6% to fixed income, and 4% to cash and liquidity
managers). Expendable financial resources included approximately $53.8 million
of Foundation expendable net assets. The Foundation and the University recently
changed their investment management model, moving long-term investments under
the management of two parties: UNC Management Company, Inc., a separate
non-profit company affiliated with UNC Chapel Hill, and Global Endowment
Based on Moody's methodology for analyzing monthly liquidity and unaudited data,
the University held $141 million in unrestricted monthly liquidity as of June
30, 2010 (up from $136 million the prior year), which translated into a
satisfactory 133 monthly days cash on hand (days cash on hand from investments
liquid within one month).
With the current borrowing the University will be funding the capital portion of
its planned entry into intercollegiate football at the Division I-AA level
beginning in 2013. The related debt service and operation expenses will be
funded primarily through mandatory student fees which have been approved and a
portion of which are already being collected. We anticipate around $93 million
in additional debt in the coming years for additional residence and parking
facilities. A significant portion of the University's capital needs have been
met through state capital support, with capital appropriations, grants and gifts
of over $135 million over the last half decade. Pro forma maximum annual debt
service equates to 5.2% of FY 2010 operating expenses pointing to still
manageable debt service burden. Mitigating the impact of additional debt on the
risk profile of the University is the University's conservative, fixed-rate debt
structure with relatively rapid retirement of principal (over $30 million of
principal payments schedule for FY 2011 - 2015).
The stable outlook is based on expected stabilization of enrollment
growth, continued state operating support with continuing solid debt service
coverage and manageable additional borrowings.
What Could Change the Rating UP
Significant growth in financial resource base; further improvements in scope of
research activities and student market position.
What Could Change the Rating DOWN
Marked decline in operating performance; significant reductions in public
support; material increase in debt.
KEY INDICATORS (Fiscal year 2010 draft financial data and fall 2010
FTE enrollment: 22,286 students
Freshman selectivity: 71.5%
Freshman yield: 37.2%
Total financial resources: $268 million
Pro-forma direct debt: $242 million
Expendable financial resources to pro-forma direct debt: 0.9 times
Expendable financial resources to operations: 0.5 times
Monthly Unrestricted Liquidity: $141 million
Monthly Days Cash (unrestricted funds available within 1 month divided by
operating expenses excluding depreciation, divided by 365 days): 133 days
State appropriation per student: $9,040
Average operating margin: 7.2%
State general obligation rating: Aaa (stable outlook)
Operating reliance on state support: 43.6%
Series 2006, 2009A and B, 2010: Aa3
Series 2007A and 2007B General Revenue Bonds: Aa3; insured by FSA (current
financial strength rating of Aa3 with a negative outlook)
University of North Carolina Foundation's Certificates of Participation for East
Carolina University and the University of North Carolina at Charlotte, Series
2004: A1 underlying, insured by Ambac
System Pool Revenue Bonds Series 2010B-1: Aa3
University: Susan Brooks, Associate Vice Chancellor for Finance, 704-687-5770
Financial Advisor: Paul M. Clancy, RBC Capital Markets, 215-832-1518
The last rating action was on November 18, 2009 when University of North
Carolina at Charlotte's A1 rating and stable outlook were affirmed. The rating
was subsequently recalibrated to Aa3/stable on May 7, 2010.
The principal methodology used in this rating was Public College and
Universities published in November 2006.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings and confidential
and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Dennis M. Gephardt
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S ASSIGNS Aa3 RATING TO THE UNIVERSITY OF NORTH CAROLINA AT CHARLOTTE'S $40.8 MILLION GENERAL REVENUE BONDS, SERIES 2010; OUTLOOK IS STABLE
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