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Rating Action:

Moody's assigns Aa1 to Ohio State University, OH's $150M Ser. 2014 A and Aa1/VMIG 1 to $150M Ser. 2014 B General Receipts Bonds; outlook stable

11 Sep 2014

University has $2.8B rated debt including current offering

New York, September 11, 2014 --

Moody's Rating

Issue: General Receipts Bonds, Series 2014A; Rating: Aa1; Sale Amount: $150,000,000; Expected Sale Date: 9/18/2014; Rating Description: Revenue: Public University Broad Pledge

Issue: Variable Rate Demand General Receipts Bonds, Series 2014B; Rating: Aa1/VMIG 1; Sale Amount: $150,000,000; Expected Sale Date: 9/18/2014; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service assigns a Aa1 rating to $150 million The Ohio State University's General Receipts Bonds, Series 2014 Series A (Fixed Rate) and $150 million Aa1/VMIG 1 to Series 2014 Series B (Variable Rate). The Series 2014 A bonds will be issued with a maturity of up to 100 years and, if greater than 30 years, will be taxable. At the same time, we affirm the Aa1 and Aa1/VMIG 1 ratings for outstanding General Receipts Bonds and the Aa2 rating of the university's Special Purpose General Receipts Bonds. The outlook is stable.

SUMMARY RATING RATIONALE

The Aa1 rating for the General Receipts Bonds reflects The Ohio State University's (Ohio State or the OSU) size and strong student demand, consistently positive operating performance and cash flow despite modest state funding, and solid financial and treasury management assuring sound self-liquidity levels supporting variable rate debt. These strengths are offset by high leverage compared to peers, increased competition for research funding, and uncertainties related to patient service revenue given a highly competitive health care market and the potential impact of health care reform.

The Aa2 rating on the Special Purpose General Receipts Bonds is one rating notch below the Aa1 rating on the General Receipts Bonds and reflects the subordinate pledge of certain auxiliary revenue.

The short-term VMIG 1 rating on the General Receipts variable rate demand bonds is based on the university's close management and adequate coverage of demand debt with internal liquidity available on a daily basis.

The stable outlook reflects expectations of continued positive operating performance, modestly growing financial resources, and no additional debt plans.

STRENGTHS

*The OSU is the flagship and land grant with a large academic medical center, resulting in scale that provides operational flexibility. Fiscal year (FY) 2013 operating revenue increased to nearly $5 billion and there were 57,796 full-time equivalent students in fall 2013.

*The university is attracting more students from out-of-state reducing its dependence on the state economy and demographics. Part of the university's popularity is derived from the fact that it is a member of the Big Ten athletic conference.

*The OSU has positive operating performance, with operating margins averaging 4.3% and a 10% cash-flow margin in FY 2013, driven in part by positive healthcare operations.

*With $668 million of grants and contract revenue in FY 2013, Ohio State is a major research university providing a platform for faculty and students to collaborate with government and business to discover new products and medical treatments.

*The university continues to implement multiple strategies to improve governance and management, market position, and fundraising as well as to improve operational efficiencies.

*The closely managed treasury provides sufficient coverage from internal liquid reserves to support the highest VMIG 1 short-term rating.

CHALLENGES

*The OSU derives a large portion of revenue from health care in a very competitive market with 47% of FY 2013 revenue derived from patient services and eight of the university's 14 colleges focused on health sciences.

*Research grant awards remain constrained due to the federal budget and episodic support from private foundations and corporations that don't cover indirect costs.

*Continued balance sheet and operating leverage result in a thinner financial resource cushion than peer institutions. Estimated FY 2014 expendable resources are only 0.93 times pro-forma debt and 0.54 times operations.

*Ohio State is, in large part, reliant on in-state students for undergraduate enrollment at a time when high school graduates in the state are expected to decline by 5.7% between FY 2012 and 2022. Seventy percent of freshmen in fall 2014 are from Ohio.

*There is potential for the state to require the university to contribute more to the state-sponsored pension plans that are currently poorly funded.

*There are construction and occupancy risks related to both the North Residential District Transformation project and the Ohio State University Health System project given the breadth of those projects.

Outlook

The outlook is stable reflecting the university's demonstrated ability to reduce costs while continuing to operate in the black despite competition for health services and constraints on tuition, state, and grants funding.

WHAT COULD MAKE THE RATING GO UP

Significant growth in spendable financial resources and improved and sustained cash flow providing more robust liquidity and debt service coverage, reduction in leverage, and reduced dependence on the state's economy and demographics could result in an upgrade.

WHAT COULD MAKE THE RATING GO DOWN

A significant increase in debt, reduction in reserves, or deterioration of operating performance given high leverage could result in a negative rating action, as could a significant increase in pension and Other Post-Employment Benefits payment responsibility.

RATING METHODOLOGIES

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 rating the variable rate demand bonds was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. 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.

Edith F Behr
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

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 assigns Aa1 to Ohio State University, OH's $150M Ser. 2014 A and Aa1/VMIG 1 to $150M Ser. 2014 B General Receipts Bonds; outlook stable
No Related Data.
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