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Rating Action:

Moody's affirms Northwestern University's (IL) Aaa, Aaa/VMIG 1 and P-1 ratings in conjunction with remarketing of the Series 2008-B Adjustable Rate Revenue Bonds; rating outlook is stable

14 Feb 2013

University has $1.09 billion of outstanding rated debt, including taxable commercial paper program at full $300 million authorized amount

New York, February 14, 2013 -- Moody's Investors Service has affirmed Northwestern University's (Northwestern) Aaa, Aaa/VMIG 1 and P-1 outstanding ratings in conjunction with the remarketing of its $50.0 million of Series 2008-B Adjustable Rate Revenue Bonds on March 1, 2013. On that date, the Series 2008-B bonds will be remarketed to weekly mode from the current adjustable mode. The long-term rating outlook remains stable. The tender features of the university's variable rate bonds and maturing commercial paper are supported by its self-liquidity.

SUMMARY RATINGS RATIONALE: Northwestern University's Aaa rating reflects its excellent financial resource cushion for debt and operations, national student market position and research presence, strong gift revenues, and consistently favorable operating performance and cash flow. Offsetting challenges are strong competition for high quality students and research funding, substantial capital plans with uncertain funding sources, a debt structure with bullet maturities and substantial unfunded investment commitments. The VMIG 1 and P-1 ratings reflect the university's sufficient self-liquidity to support the tender features of its variable rate debt and repayment of maturing commercial paper. Any future debt plans are currently not factored into the rating or the outlook as the university's capital and related debt plans are yet to be finalized. As the debt plans are finalized, those will be assessed to determine any potential impact on the credit profile.

STRENGTHS

*Excellent financial resource cushion, with expendable financial resources of $6.24 billion for fiscal year (FY) 2012 cushioning $1.09 billion of pro-forma debt (assuming full $300 million commercial paper program) by 5.7 times and annual operations by 3.5 times.

*Strong national academic reputation and nationally ranked programs, with 16,000 full-time equivalent (FTE) enrollment and high undergraduate selectivity and good yield of 15.4% admissions rate and 41.4% enrollment rate, respectively, for fall 2012. Graduate and professional students comprise 48% of FTE contributing contributed to high net tuition per student of $32,853 for FY 2012.

*Consistently favorable operating performance and cash flow generation, with a three-year average operating margin of 8.9% and an operating cash flow margin of 14.5% in FY 2012, as calculated by Moody's assuming a 5% endowment spend rate.

*Large research enterprise, with research awards of $508 million and research expenses of $426 million in FY 2012.

*Continued excellent fundraising, with reported gift revenues of $260 million in FY 2012 and three-year average gift revenues of $219 million for FY 2008-FY 2012. The board is considering a comprehensive campaign but the goal and timeline are not yet determined.

CHALLENGES

*Substantial future capital plans for its Evanston and Chicago campuses, with the timing of future borrowing plans uncertain as the university assesses fundraising and other funding sources.

*Fierce competition amongst nationally elite research universities for the most talented students, including providing competitive financial aid packages, against other highly ranked private and public universities, with total tuition discount rising modestly to 33.8% for FY 2012 from 29.8% in FY 2008.

*Substantial unfunded investment commitments of $1.15 billion at FYE 2012 within the endowment, up from $1.04 billion the prior year as the university continues to invest in non-marketable investments in its endowment. A significant mitigant is the increase in unrestricted monthly liquidity to $2.46 billion in FY 2012 from $1.49 billion in FY 2009 and active management of cash flow to meet unfunded commitments and other possible calls on liquidity.

*Debt structure includes long-dated bullet maturities and a reset of 3/3/2014 for 38% of its variable rate debt, necessitating careful internal management of debt.

*Strong competition for federal research funding from other research intensive universities and research organizations, which is heightened in light of the uncertain impact of sequestration that could constrain future growth rates, particularly with the university's high concentration in NIH grants.

OUTLOOK

The stable rating outlook is based on expectations that Northwestern University will continue to demonstrate excellent student demand across its diversified programs with continued growth in net tuition revenues, show a strong financial resource cushion supporting debt, increased gifts from the expected campaign launch and maintenance of favorable operating cash flow. Any impact of potential additional debt will be assessed when size, scope and structure are finalized.

WHAT COULD MAKE THE RATING GO UP

Not applicable

WHAT COULD MAKE THE RATING GO DOWN

Additional borrowing that substantially increases balance sheet and operating leverage, prolonged period of investment declines resulting in a weakened balance sheet profile, decline in philanthropic giving or deterioration in student demand as demonstrated by declining enrollment, demand measures or net tuition per student

RATING METHODOLOGIES

The principal methodology used for the commercial paper rating was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. The principal methodology used for the underlying rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The principal methodology used for the variable rate demand rating was Variable Rate Instruments Supported by Third-Party Liquidity Providers published in November 2006. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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

Erin Veronica Ortiz
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 affirms Northwestern University's (IL) Aaa, Aaa/VMIG 1 and P-1 ratings in conjunction with remarketing of the Series 2008-B Adjustable Rate Revenue Bonds; rating outlook is stable
No Related Data.
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