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Rating Action:

Moody's assigns Aa1 to Ohio State University's General Receipts Bonds, Series 2016A & B

19 Feb 2016

New York, February 19, 2016 -- Issue: General Receipts Bonds (Multiyear Issuance Program) Series 2016 A (Federally Taxable); Rating: Aa1; Sale Amount: $600,000,000; Expected Sale Date: 03-02-2016; Rating Description: Revenue: Public University Broad Pledge

Issue: General Receipts Bonds (Multiyear Issuance Program) Series 2016 B (Tax-Exempt); Rating: Aa1; Sale Amount: $30,000,000; Expected Sale Date: 03-02-2016; Rating Description: Revenue: Public University Broad Pledge

Summary Rating Rationale

Moody's Investors Service has assigned a Aa1 rating to approximately $600 million of The Ohio State University's proposed General Receipts Bonds (Multiyear Issuance Program) Series 2016 A (Federally Taxable) and $30 million Series 2016 B (Tax-Exempt). The size of this transaction may change based on market conditions. The Multiyear Issuance Program is authorized for up to $1 billion. At the same time, we have affirmed the outstanding ratings. The outlook is stable for all securities. The Aa1 rating reflects the university's market profile as the State of Ohio's flagship, land grant university, and member of the Big Ten Conference, large scale operations, and healthy cash and investments. The Aa1 rating also acknowledges the university's sizeable health care exposure, its growing financial leverage, and ongoing capital expenditure needs. The ratings are subject to the transaction as proposed and receipt of final documentation.

The short-term ratings are based on the strength of the underlying credit as well as healthy daily liquidity to address any potential failed remarketing.

Rating Outlook

The outlook is stable reflecting our expectation that the university will continue to closely manage operations while providing a vital role in the State of Ohio's higher education system. We expect that the sizeable health care operations will benefit from Medicaid expansion. Also, incorporated in the stable outlook is tolerance for use of some cash and investments on capital projects.

Factors that Could Lead to an Upgrade

Reduction of financial leverage through a combination of debt amortization and material growth in spendable cash and investments

Sustained further strengthening in cash flow and operating margins

Factors that Could Lead to a Downgrade

Significant rise in financial leverage

Deterioration of health care or student market leading to weakening of operating margins and depressing debt service coverage

Material use of financial reserves and erosion of unrestricted liquidity

Legal Security

The new Multiyear Debt Issuance Program, in the form of a supplement to the amended and restated 1999 Trust Indenture, provides the university with maximum flexibility to structure its $1 billion bond authorization and to expedite access the market June 30, 2017 when the current Ohio Department of Higher Education authorization expires. Bonds can be issued as taxable, tax-exempt, fixed or variable rate (including commercial paper). And, they can be offered with a general receipts pledge or a special purpose general receipts pledge.

Outstanding bonded debt is mostly in the form of general receipts bonds, rated Aa1 stable. General receipts bonds are payable from and secured by a first pledge of and lien on the general receipts of the university and the debt service fund. General receipts consist of all moneys received by the university for student charges, all unrestricted grants, gifts, donations and pledges, as well as bond proceeds. Specifically excluded from general receipts are state appropriations unless authorized by law; and any restricted grants, gifts, donations and pledges, and receipts.

One series of bonds, the special purpose general receipts bonds, rated Aa2 stable, is subordinate to the general receipts revenue bonds. Special purpose general receipts bonds are secured by a pledge of all revenues, fees, rentals, rates, charges, insurance proceeds and other moneys derived by the university from the ownership or operation of student housing, dining and recreational sports systems.

The special purpose general receipts bonds have a rate covenant 1.1 times. Coverage for FY 2016 is expected to be close to 7 times.

Use of Proceeds

Proceeds from the Series 2016 A bonds will be used for a mix of strategic, academic, medical center, and athletics capital projects. Proceeds from the Series 2016 B bonds are expected to be used to current refund all or a portion of the remaining Series 2005 A bonds.

Obligor Profile

The Ohio State University is the State of Ohio's flagship and land grant university. It is a comprehensive research university that owns and operates the Ohio State University Wexner Medical Center, comprised of six hospitals and Ohio State's primary-care and ambulatory health networks. Its main campus is in Columbus, and it has educational programs at extended campuses in Lima, Mansfield, Marion, and Newark. There were almost 60,000 full-time equivalent students in fall 2015 and total annual operating revenue is $5.5 billion.

Methodology

The principal methodology used in this rating was Global Higher Education published in November 2015. An additional methodology, Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity, published in January 2012 was used for the short-term ratings. Please see the Ratings 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 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 Behr
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Susan Fitzgerald
Additional Contact
Higher Education
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's General Receipts Bonds, Series 2016A & B
No Related Data.
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