UNIVERSITY WILL HAVE APPROXIMATELY $2 BILLION OF RATED DEBT OUTSTANDING, INCLUDING COMMERCIAL PAPER AT FULL AUTHORIZED PROGRAM SIZE
New York, February 16, 2012 --
Moody's Rating
Issue: General Revenue Bonds, Series 2012A; Underlying
Rating: Aaa/VMIG 1; Sale Amount: $50,000,000;
Expected Sale Date: 3/1/12; Rating Description: Revenue:
Public University Broad Pledge
Issue: General Revenue Bonds, Series 2012B; Underlying
Rating: Aaa; Enhanced Rating: VMIG 1; Sale Amount:
$65,000,000; Expected Sale Date: 3/1/12;
Rating Description: Revenue: Public University Broad Pledge
Issue: General Revenue Bonds, Series 2012C; Underlying
Rating: Aaa; Sale Amount: $99,000,000;
Expected Sale Date: 4/4/12; Rating Description: Revenue:
Public University Broad Pledge
Opinion
Moody's Investors Service has assigned Aaa and Aaa/VMIG 1 ratings to The
University of Michigan's (The University) $214 million of General
Revenue Bonds, Series 2012A, 2012B, and 2012C.
The Series 2012A bonds are variable rate demand bonds to be issued in
a weekly rate mode, with the tender feature supported by self-liquidity.
The Series 2012B bonds are variable rate demand bonds to be issued in
a daily mode, with the tender feature supported by a Standby Bond
Purchase Agreement from Northern Trust Company. The Series 2012C
bonds will be issued as fixed rate bonds with a bullet maturity in 2017.
At this time, Moody's has affirmed the University's Aaa, Aaa/VMIG
1, and P-1 ratings. The outlook remains stable.
SUMMARY RATING RATIONALE
The University of Michigan's Aaa rating and stable outlook reflect its
excellent market position as a large, flagship university with one
of the nation's largest research enterprises and a preeminent reputation
as an academic medical center. The rating also incorporates the
University's superior financial flexibility derived from its robust balance
sheet, consistently positive operating performance, and history
of strong philanthropic support. The University's key credit challenges
include its high degree of exposure to the potentially volatile healthcare
market, extensive capital plans, and exposure to the economically
depressed State of Michigan (rated Aa2, with a stable outlook).
The highest short-term ratings of P-1 and VMIG1 are based
on The University of Michigan's strong internal liquidity and treasury
management and dedicated bank lines.
STRENGTHS
*Prestigious, large, comprehensive university enrolling
nearly 54,000 full-time equivalent undergraduate, graduate,
and professional students across a diverse array of programs on three
campuses. The University's ability to attract students from a broad
geographic area (41% of undergraduate students from outside of
Michigan in fall 2011) combined with strong selectivity and yield (40.6%
and 38.9%, respectively) reflect the strength of its
market position.
*Superior financial flexibility derived from a robust balance sheet
and manageable leverage profile. In fiscal year (FY) 2011,
expendable financial resources of $6.1 billion (depressed
by a $1.6 billion other post-employment benefit obligation)
covered pro-forma debt, including CP at the full authorized
amount, 3.0 times and 113% of The University's $5.4
billion expense base.
*Preeminent reputation as a quaternary academic medical center,
with a broad geographic area that extends across the state, partially
mitigating the competitive pressures faced by hospitals with a more localized
service region. The University of Michigan Hospitals and Health
Centers' (rated Aa2, stable) provision of high-end specialty
services as well as significant recent capital investments which will
increase capacity should continue to drive solid demand.
*One of the nation's leading research organizations, with $733.5
million in research expenses in FY 2011, strengthened by the relative
diversity of program areas funded.
*Consistently positive operating margins driven by the good performance
of the University of Michigan Hospitals and Health Centers (before transfers
back to The University) which comprises the largest share of Moody's adjusted
operating revenue. The continued positive performance in provision
of health care services is important to The University's overall cash
flow.
CHALLENGES
*High degree of exposure to the potentially volatile healthcare market,
with much of The University's profitability and cash flow driven by hospital
operations. These revenues may be substantially more pressured
or uncertain than other revenue streams given pressures on State funding
for Medicaid and healthcare reform. In FY 2011, patient care
revenue accounted for nearly 43% of Moody's adjusted operating
revenue.
*Extensive capital plan totaling $5.6 billion during
fiscal years 2012-2021, with total debt issuance expected
of $1.2 billion during this time period. The peak
amount of debt outstanding is expected to reach $2.2 billion
in 2016. The University retains considerable flexibility to adjust
the timing of projects and its use of philanthropic support to finance
projects.
*Exposure to the economically depressed State of Michigan (rated Aa2
with a stable outlook). However, The University derives a
substantial amount of revenue from outside the State and has significant
flexibility to further grow revenues from other regions of the country,
especially from further diversification of student enrollment.
It is also a substantial driver of economic activity in the State and
is likely to be viewed as a positive investment by the State and other
organizations.
Outlook
The stable outlook reflects The University's superior market and balance
sheet positions, which should sustain its credit strength despite
a challenging economic environment in Michigan and exposure to the more
volatile healthcare market.
WHAT COULD MAKE THE SHORT-TERM RATING GO UP
Not applicable
WHAT COULD MAKE THE SHORT-TERM RATING GO DOWN
The short-term rating on the Bonds could be lowered if the short-term
OSO rating of the Bank or the long-term rating of the underlying
bonds is downgraded.
WHAT COULD MAKE THE LONG-TERM RATING GO UP
Not applicable
WHAT COULD MAKE THE LONG-TERM RATING GO DOWN
Substantial weakening of Hospitals operations, dramatic increase
in debt beyond expectations, or failure to continue to sustain a
high degree of liquidity relative to short-term debt and other
cash needs
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
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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
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Karen Kedem
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
Kay Sifferman
VP - Senior Credit Officer
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 Aaa and Aaa/VMIG 1 RATINGS TO UNIVERSITY OF MICHIGAN'S $214 MILLION OF GENERAL REVENUE BONDS, SERIES 2012A, 2012B, AND 2012C AND AFFIRMS EXISTING RATINGS; OUTLOOK REMAINS STABLE
