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Rating Update:

MOODY'S PLACES UNIVERSITY OF PUERTO RICO'S RATINGS ON WATCHLIST FOR POSSIBLE DOWNGRADE

Global Credit Research - 11 Aug 2011

ACTION AFFECTS $652 MILLION OF RATED DEBT OUTSTANDING

Higher Education
PR

Opinion

NEW YORK, Aug 11, 2011 -- Moody's Investors Service has placed the University of Puerto Rico's ratings on Watchlist for possible downgrade. The rating action affects $652 million of rated debt issued through AFICA. We expect to conclude our review within 90 days.

SUMMARY RATING RATIONALE

This action follows the downgrade of the Commonwealth of Puerto Rico to Baa1 with a negative outlook from A3 with a negative outlook on August 8, 2011. The University is heavily dependent on the Commonwealth support for more nearly 75% of fiscal year (FY) 2010 operating revenues. The University's very strong market position as the only public higher education institution in Puerto Rico, and its role in economic development, remains significant credit strength.

During our review period, we will assess the University's relationship with the Commonwealth and expectations for future financial support, the governance and management of the University, and future strategic, capital and debt plans. The outcome of the review process could result in a rating downgrade of more than one rating level.

DETAILED CREDIT DISCUSSION

LEGAL SECURITY: The Pledged Revenue Bonds, rated Baa1, are secured by a pledge of tuition and student fees, other auxiliary revenues, investment income, indirect cost recoveries and other unrestricted income. The University has covenanted to use Commonwealth appropriations to fund debt service if other revenues are insufficient. There is a fully funded debt service reserve fund. In FY 2010, Pledged Revenues provided 2.7 times debt service coverage.

The 2000 Series A Bonds, rated Baa2, are subordinate bonds secured by lease payments of the University, with a subordinate pledge of tuition and other restricted revenues. In FY 2010, debt service coverage was 2.4 times for the 2000 Series A bonds.

KEY INDICATORS (FY 2010 financial results; Fall 2010 enrollment):

Total Enrollment: 62,342 Headcount Students

Total Comprehensive Debt: $739 million

Expendable Financial Resources: -$89.2 million

Total Cash and Investments: $247.1 million

Expendable Financial Resources to Debt: -0.12 times

Expendable Financial Resources to Operations: -0.07 times

Reliance on Commonwealth funding: 74.7%

Commonwealth of Puerto Rico: rated Baa1, negative

RATED DEBT:

Pledged Revenue Bonds, Series C, D, N, O, P, Q: Baa1 rating

AFICA, 2000 Series A Bonds (University Plaza Project) (subordinate lien): Baa2 rating

CONTACTS:

Government Development Bank of Puerto Rico: (787) 722-2525; Jose R Otero-Freiría, Executive Vice President - Financing; Juan M. Roman Rivera, Executive Vice President and Fiscal Agent

University: Dr. Miguel A. Muñoz, President, (787) 232-9597

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was Public College and Universities published in November 2006. 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 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.

Analysts

Diane F. Viacava
Analyst
Public Finance Group
Moody's Investors Service

Edith Behr
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S PLACES UNIVERSITY OF PUERTO RICO'S RATINGS ON WATCHLIST FOR POSSIBLE DOWNGRADE
No Related Data.
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