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Rating Action:

Moody's assigns A2 to Tulane University's (LA) 2020A revenue bonds; outlook stable

26 Jun 2020

New York, June 26, 2020 -- Moody's Investors Service has assigned an A2 to Tulane University's (LA) proposed approximately $188 million of Revenue and Refunding Bonds (Tulane University of Louisiana Project) Series 2020A. The bonds will be issued through the Louisiana Public Facilities Authority and have an expected final maturity in 2050. We have also affirmed the A2 ratings on the university's $628 million of outstanding rated revenue bonds. The outlook is stable.

RATINGS RATIONALE

The assignment and affirmation of the A2 rating incorporates Tulane's excellent student market profile, significant over $1 billion scale of operations, and total wealth of $1.5 billion. Management's commitment to sustained improved operating performance, combined with donor support, also boost credit quality. While operating cash flow for fiscal 2021 is likely to soften, management has identified a path to achieve break even operating performance. Further, the university's strong brand and deep demand provide favorable prospects for enrollment stability despite operational disruptions due to the coronavirus pandemic. These strengths are offset by weak, but improving, liquidity and health care exposure.

Additionally, the coronavirus (COVID-19) situation has created dislocation across industries and geographies and triggered urgent challenges for many businesses and organizations to address. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Tulane has been proactive in addressing this challenge by transitioning to online course work in the spring and offsetting any auxiliary revenue losses through spending restrictions. Tulane announced that the Fall 2020 semester will be on campus, but with an earlier start and with classes ending right before Thanksgiving Day.

RATING OUTLOOK

The stable outlook reflects our expectation that Tulane will adjust to near term operational and financial challenges posed by the coronavirus pandemic. We also expect the university will be able to resume its positive financial momentum after the current period of disruption based on its favorable student demand and philanthropy, as well as its strengthened financial practices in recent years.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Material increase in unrestricted liquidity with sustained operating cash flow margins above 10%

- Enhanced strategic alignment across the education, research, and health care enterprise

- Moderation of financial leverage

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Reduction in already comparatively low unrestricted liquidity

- Inability to return to recent levels of financial performance after fiscal 2021, particularly if liquidity declines

- Increased risk associated with the healthcare enterprise

LEGAL SECURITY

The bonds are unsecured general obligations of the university. There is a negative pledge on university property apart from certain property already encumbered. Under the prior Loan Agreements, Tulane is subject to limitations on additional general obligation debt, including a pro forma test of Unrestricted Assets to Unrestricted Liabilities of at least 1.40x, and that Gross Tuition Revenues and Fees shall be at least 1.40x pro forma Maximum Annual Debt Service.

USE OF PROCEEDS

Proceeds from the proposed 2020A bonds will primarily be used to fund new student housing, construction of a science and engineering building, and support additional capital needs. In addition, proceeds will refund Series 2009 and Series 2010 direct placement debt and will eliminate puttable debt.

PROFILE

Tulane University is a large comprehensive private research university located in New Orleans, Louisiana. The university's nine academic schools are primarily located on two academic campuses. In fiscal 2019 the university had operating revenue of $1.0 billion.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available 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.

Roy Eappen
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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