New York, June 06, 2016 -- Issue: Academic Building Revenue Refunding Bonds, Series S.U.I. 2016; Rating: Aa1; Rating Type: Underlying LT; Sale Amount: $20,170,000; Expected Sale Date: 06/09/2016; Rating Description: Revenue: Public University Broad Pledge;
Summary Rating Rationale
Moody's Investors Service has assigned a Aa1 rating to State University of Iowa's (SUI or University of Iowa) proposed $20.2 million of Academic Building Revenue Refunding Bonds, Series S.U.I. 2016 (final maturity in 2028), to be issued through the Board of Regents, State of Iowa. We have also affirmed the Aa2 ratings on outstanding Athletic Facilities Revenue Bonds and the Aa1 ratings on all other outstanding university revenue debt and University of Iowa Facilities Corporation debt. Hospital Revenue Bonds are rated separately through the University of Iowa Hospitals and Clinics. The outlook is stable.
SUI's Aa1 rating reflects its solid market profile as the state's flagship university and national profile as a member of the Big Ten athletic conference, and only public academic medical center in Iowa. The rating is also supported by the university's consistent positive operations, healthy financial resource cushion relative to debt and operations and a strong history of fundraising. These factors are counterbalanced by expanding patient care exposure, high reliance on extremely competitive federal research funding and a need for continued investment in facilities and equipment.
The Athletic Facilities Revenue Bonds are rated one notch below the university's highest rating reflecting the narrower stream of pledged revenues for these bonds.
The stable outlook reflects expectations of strong student demand, favorable operations with cash flow maintaining at around 13%, strong wealth levels and manageable future borrowing.
Factors that Could Lead to an Upgrade
Significant, sustained increase in liquidity and financial cushion to debt and operations
Material increase in student demand driving strong growth in net tuition revenues
Factors that Could Lead to a Downgrade
Persistent deterioration of SUI's or University of Iowa Hospitals and Clinics's (UIHC) operating cash flow margins, leading to insufficient consolidated cash flow to cover debt service
Substantial borrowing without commensurate growth in revenue or reserves
Academic Building Revenue Bonds (ABR) are secured by a broad pledge of gross student tuition and charges, as well as other institutional income. The ABR bonds are also supported by a DSRF. SUI receives debt service reimbursement from the State for all ABR bonds, although the State has no legal obligation to provide this reimbursement and it is not pledged to bondholders. Although there is no required debt service coverage, the ABRs had over 28 times coverage in FY 2015.
Debt service coverage on other pledges remains healthy as of June 30, 2015:
Academic Building Revenue Bonds: 28 times coverage, no requirement
Athletic Facilities System Revenue Bonds: 2.4 times coverage compared to 1.25 minimum
Center for University Advancement Revenue Bonds: not applicable, lease backed, no requirement
Dormitory Revenue Bonds: 2.2 times compared to 1.35 times minimum; FY 2015 projected coverage is 2.15 times.
Iowa Memorial Union Revenue Bonds: 2.3 times coverage compared to 1.2 times required
Parking System Revenue Bonds: 2.4 times coverage compared to 1.2 times required
Recreational System Facilities Revenue Bonds: 1.6 times coverage compared to 1.25 times required
Telecommunication System Revenue Bonds: 1.7 times coverage compared to 1.1 times required
Utility System Revenue Bonds: 2.5 times coverage compared to 1.2 times required
UIFC Revenue Bonds: not applicable, lease backed, no requirement
For additional information on the specific pledges, please see our report on April 23, 2014.
Use of Proceeds
The proceeds of the bonds will be used to (i) provide for the advance refunding of the outstanding principal of the July 1, 2017 through July 1, 2028 maturities of the Board's Academic Building Revenue Bonds, Series S.U.I. 2007, and (ii) pay the costs of issuance.
State University of Iowa is the State of Iowa's flagship institution located in Iowa City. The university serves a vital role in the health care of the state as the state's only academic medical center. It also serves an essential role as one of only three public universities in the state and offering medicine, law, business, a renowned Writer's Workshop program and many other programs. Enrollment is sizeable at almost 28,000 full-time equivalents and operations are large at $3 billion and growing.
The principal methodology used in this rating was Global Higher Education published in November 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
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.
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Moody's assigns Aa1 to State University of Iowa's ABR Refunding Bonds, Series 2016; outlook stable
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