New York, May 18, 2016 -- Issue: Refunding Limited Obligation Bonds, Series 2016; Rating: A1; Rating Type: Underlying LT; Sale Amount: $57,580,000; Expected Sale Date: 06/09/2016; Rating Description: Revenue: Public University Limited Pledge;
Summary Rating Rationale
Moody's Investors Service has upgraded the University of North Carolina at Wilmington's (UNCW) $14 million general revenue bonds and $21 million Series 2010D pool revenue bonds to Aa3 from A1. We also upgraded the $118 million rated outstanding limited obligation bonds and Certificates of Participation to A1 from A2. We have concurrently assigned an A1 to the proposed $58 million in Refunding Limited Obligation Bonds, Series 2016, to be issued through the UNCW Corporation and expected to mature in 2038. The outlook is stable.
The upgrade reflects UNCW's important role as a favorably located public university and constituent member of the University of North Carolina System, with strong state financial support, growing financial reserves, and overall strengthening student demand. It also incorporates expectations of continued growth of wealth and operating revenue, which when combined with regular principal payments, will result in diminished leverage.
Offsetting challenges include high debt burden and relatively modest wealth levels compared to Aa3 peers, and limitations on out-of-state student enrollment and tuition setting.
The stable outlook reflects expectations that UNCW will maintain strong student demand and state support, leading to consistent revenue growth and ample cash flow generation in the 12-14% range. It also incorporates expectations of ongoing financial reserve growth and no additional borrowing plans, resulting in a continued improvement of the university's leverage position.
Factors that Could Lead to an Upgrade
Significant and sustained growth in wealth providing a stronger cushion to debt and operations
Substantial improvement in revenue diversity
Factors that Could Lead to a Downgrade
Sustained decline in the State of North Carolina's credit quality or reduced state financial support
Material weakening of liquidity
Softening student demand leading to weak net tuition revenue growth and weaker cash flow
Additional borrowing without commensurate growth in cash and investments
The general revenue bonds and system pool revenue bonds are unsecured general obligations of the university, payable from available funds. These include all unrestricted general fund and unrestricted quasi-endowment fund balances, except for those derived from tuition, state appropriations, or restricted funds. UNCW is the sole obligor for the Series 2010D Pool Revenue Bonds. The general revenue and pool revenue bonds have first priority of payment over the limited obligation bonds.
The Series 2016 and other limited obligation securities are paid solely from 1) net project revenues, and 2) dormitory, dining, and parking systems revenue once the university's general revenue debt has been paid. The university maintains ample headroom above the 1.1 times debt service coverage covenant, measured at 4.4 times in FY 2015. Further security for bondholders is provided through an additional bonds test.
The Series 2008 obligations are further secured by a reserve fund requirement, met with an insurance policy from Assured Guaranty Municipal Corp.
Use of Proceeds
The Series 2016 bonds are being issued to refund the 2008 Certificates of Participation and pay issuance costs.
UNCW, a mid-sized regional public university and constituent member of the University of North Carolina System, is situated in coastal North Carolina. It offers a comprehensive list of undergraduate, graduate, certificate, and online offerings, with notable programs in marine sciences, education, and nursing. The university served 13,784 full-time equivalent students in fall 2015 and had FY 2015 operating revenues of $285 million.
The principal methodology used in this rating was Global Higher Education published in November 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
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Moody's Upgrades UNC at Wilmington's Bonds to Aa3 and A1 & Assigns A1 to Series 2016 Bonds; Outlook Stable
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007