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Rating Action:

Moody's assigns Aa1 and Aa1/VMIG 1 to Cornell University, NY's $206 million Series 2019A and 2019B; outlook stable

28 Mar 2019

New York, March 28, 2019 -- Moody's Investors Service assigns Aa1 and Aa1/VMIG 1 ratings to the proposed Cornell University (NY) Revenue Bonds, Series 2019A and Series 2019B. The expected par amounts for the bonds will be $114 million and $92 million and final maturities will be in fiscal years 2029 and 2039, respectively. The bonds will be issued through the Dormitory Authority of the State of New York. We have also affirmed the existing Aa1, Aa1/VMIG 1 and P-1 ratings on Cornell's roughly $900 million of outstanding rated debt. The outlook is stable.

RATINGS RATIONALE

Cornell University's Aa1 rating incorporates the university's superior student market strength, excellent philanthropic support, growing wealth, and research prowess. Stable operating performance will continue to be supported by diverse revenue sources including operating support from the State of New York. These strengths are tempered by growing patient care exposure, softer operating performance than similarly rated peers and ongoing capital needs. Spendable cash and investments cover operating expenses by 1.0x, a sound cushion but limited relative to similarly rated peers. With diverse sources of capital funding, the university's financial leverage will remain manageable. Current pro forma debt to operating revenue is under 0.4x.

The VMIG 1 short-term enhanced rating on the Series 2019B bonds is derived from (i) the credit quality of U.S. Bank National Association (the Bank) as provider of liquidity support for the bonds in the form of a Standby Bond Purchase Agreement (Liquidity Facility), (ii) the long-term rating of the bonds and (iii) Moody's assessment of the likelihood of an early termination or suspension of the Liquidity Facility without a final mandatory tender. Events that would cause termination or suspension of the Liquidity Facility without a mandatory purchase of the bonds are directly related to the credit quality of the university. Accordingly, the likelihood of any such event occurring is reflected in the long-term rating assigned to the bonds. Moody's current short-term counterparty risk assessment (CR Assessment) of the Bank is P-1(cr).

The P-1 short-term underlying ratings on the tax-exempt and taxable commercial paper (CP) programs reflect the self-liquidity and strong treasury management of the university. The VMIG-1 ratings on the Series 2004A and 20004B bonds incorporate the credit quality of The Bank of New York Mellon (P-1(cr)) and terms of standby bond purchase agreements provided by the bank.

RATING OUTLOOK

The stable outlook reflects expectations that Cornell will continue to generate revenue growth and solid debt service coverage from operations. It also anticipates diverse sources of funding for capital investments including gifts and grants with limited reliance on incremental debt.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Sustained growth in cash and investments, especially unrestricted cash and investments

- Strengthened operating performance combined with ongoing fundraising success

- Short-term: not applicable

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Material decline in liquidity or deterioration in operating performance

- Meaningful increase in financial leverage

- Weakened operating performance of faculty practice plan

- Short-term (variable rate bonds): Moody's downgrades the short-term CR Assessment of the Bank

- Short-term: Moody's downgrades the long-term rating of the bonds

LEGAL SECURITY

The majority of the rated bonds are an unsecured general obligation of Cornell. The Series 1990B bonds are additionally secured by student revenue.

Purchase price payments for the Series 2019B bonds tendered but not remarketed will be paid from remarketing proceeds and to the extent that remarketing proceeds are not available from a draw under the Liquidity Facility.

The Bank may automatically terminate or suspend its payment obligation under the Liquidity Facility:

- failure by the University to pay reimbursement obligations under the SBPA;

- failure of the University to pay principal and/or interest on the Bonds or any parity debt;

- any material provision of the SBPA, Bonds, the Bond Resolution, the Series Resolution, the Loan Agreement or the Bond Series Certificate with respect to the payment of principal and/or interest on the Bonds ceases to be valid and binding on the University or the University denies it has any or further liability with respect to such provisions;

- certain bankruptcy and insolvency events of the University;

- a final, non-appealable judgment for $15 million or more is not paid for 60 days; or

- downgrade of the Bonds or parity Bonds of the University below investment grade by each rating agency then rating the Bonds.

The Bonds will initially bear interest at the daily rate and interest will be paid on the first business day of each month. The Bonds may be converted in whole to a weekly, monthly, quarterly, variable-term, medium-term, semi-annual or fixed rate mode. Upon conversion, the bonds will be subject to mandatory tender (except for conversion between the daily and weekly rate modes) at a purchase price of par plus accrued interest.

The Liquidity Facility covers the full principal amount of the Bonds outstanding plus 36 days of interest at 15%, the maximum rate applicable to the bonds. The Liquidity Facility is available to pay purchase price to the extent remarketing proceeds received are insufficient and provides sufficient coverage for the Bonds while in the daily and weekly rate modes.

The Liquidity Facility may be substituted and upon any substitution the bonds will be subject to mandatory tender on the substitution date. In addition, the bonds are subject to mandatory tender: (i) upon conversion of the interest rate (except for conversion between the daily and weekly rate modes); (ii) on the fifth day preceding the expiration date or termination of the Liquidity Facility; or (iii) on the effective date of a new monthly, semi-annual, variable-term or medium-term rate period.

In the daily rate mode, bondholders may optionally tender their bonds by sending written notice to the tender agent and remarketing agent by 11:00 a.m. New York City time on any purchase date. Bonds in the weekly rate mode may be optionally tendered on any business day with notice not less than seven days prior to the purchase date from bondholders to the tender agent and the remarketing agent.

Draws made on the Liquidity Facility received at or prior to 11:30 a.m., New York City time, will be honored by 1:30 p.m., New York City time, on the same business day. Draws made under the Liquidity Facility will be reinstated upon reimbursement of such drawings.

The Liquidity Facility commitment will terminate upon the earliest to occur of: (i) April 25, 2024, the scheduled expiration date; (ii) the close of business on the date on which the interest rate has been converted to other than the daily or weekly rate so long as the Bank has honored any purchase resulting from such conversion; (iii) the date on which the Bank receives notice that an alternate liquidity facility has been issued to replace the Liquidity Facility so long as the Bank has honored any purchase resulting from such substitution; (iv) the date on which the available commitment under the Liquidity Facility is automatically terminated, and (v) the date on which the commitment is voluntarily terminated by the University.

USE OF PROCEEDS

The Series 2019A and 2019B bonds will be used, in combination with $80 million direct placement, to refinance the $254 million Series 2009A bonds and tax-exempt commercial paper and to pay costs of issuance.

PROFILE

Cornell University is a private Ivy League university and land-grant research university. The university's main campus is in Ithaca, New York. New York City is home to both Weill Cornell Medicine and the Cornell Tech campus. Weil Cornell Medicine also has a campus in Doha, Qatar. Three of the university's seven undergraduate colleges are contract colleges partially supported by the State of New York, in addition to the College of Veterinary Medicine.

METHODOLOGY

The principal methodology used in the long-term ratings was Higher Education published in December 2017. The principal methodology used in the short-term enhanced ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017. The principal methodology used in the short-term underlying ratings was Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in March 2018. Please see the Rating Methodologies 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 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.

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.

Dennis Gephardt
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 Shaffer
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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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