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Rating Action:

Moody's affirms Reed College, OR's Aa2 and Aa2/VMIG 1; outlook stable

Global Credit Research - 16 Aug 2013

Approximately $84 M rated debt affected

New York, August 16, 2013 -- Moody's Investors Service has affirmed Reed College's Aa2 and Aa2/VMIG 1 ratings on $84 million of revenue bonds issued through the Oregon Facilities Authority. Reed's significant balance sheet strength and strong market position are key drivers of the rating and stable outlook.

SUMMARY RATING RATIONALE

The Aa2 long term rating reflects Reed College's strong student market position with growing net tuition per student, proven fund raising ability, strong financial resources, a significant portion of which are unrestricted, and consistently positive operating performance. The rating also incorporates multiple expense pressures and reliance on investment income to fund operations.

The VMIG 1 rating for the Series 2008A bonds is based on the standby bond purchase agreement (SBPA) from Wells Fargo Bank N.A. (rated Aa3 / P-1 stable) supporting the tender feature of the bonds.

STRENGTHS

*A nationally known liberal arts college, Reed has a diverse student draw which has translated into the ability to consistently grow net tuition per student.

*Philanthropic support for the college is strong, with average gifts per student of $17,217 in Fiscal Year (FY) 2012 well in excess of the median $10,249 average gift revenue per student for similarly rated institutions.

*Financial flexibility is enhanced due to Reed's healthy unrestricted financial resources of $252 million, half of its total FY 2012 financial resources of $473 million. Unrestricted resources would enable Reed to operate for nearly three full years, or to repay debt three times over.

*Reed has consistently generated positive annual operating results, with a three year average operating margin of 10.7 % (FY 2010 to 2012). Strong financial management, as evidenced by the college's conservative budgeting and demonstrated willingness to contain expenses, support this consistent performance.

CHALLENGES

*Competing with an elite group of institutions for a national student population, Reed will face continued pressure to invest in facilities and programs to remain competitive. After containing expenses in FY 2010 and FY2011, operating expenses grew by 9.3% in FY 2012 due to addition of faculty and increased healthcare costs.

*The college is moderately leveraged from an operational perspective, with debt to operating revenue of 0.97 times. Currently the college has no additional borrowing plans.

*Reed's pace of capital spending (FY 2010 to 2012 average of 1.0 time) has been lower than peers in recent years and its higher age of plant (16 years) indicate that capital needs may materialize in the medium-term.

*Reed is exposed to investment performance volatility due to its reliance on investment income to fund nearly a quarter of its operating revenues (FY 2012).

OUTLOOK

The stable outlook reflects expectations of continued significant balance sheet flexibility, a manageable debt profile and expectation of positive margins and favorable cash flow from operations.

WHAT COULD CHANGE THE RATING UP

The primary factor that would drive a rating upgrade is an increase in financial resources that would provide even greater financial flexibility and support of operations.

WHAT COULD CHANGE THE RATING DOWN

The rating could be downgraded if there were material decline in balance sheet strength, or if demand metrics were to decline, leading to pressure on operating performance.

PRINCIPAL METHODOLOGY USED

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. An additional methodology used in the short term rating was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in May 2013. 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Faiza Mawjee
Associate 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

Diane F. Viacava
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 affirms Reed College, OR's Aa2 and Aa2/VMIG 1; outlook stable
No Related Data.

 

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