New York, May 31, 2017 -- Issue: Recreational Facilities Revenue Refunding Bonds, Series S.U.I. 2017B; Rating: Aa1; Rating Type: Underlying LT; Sale Amount: $22,785,000; Expected Sale Date: 06/12/2017; Rating Description: Revenue: Public University Limited Pledge;
Summary Rating Rationale
Moody's Investors Service has assigned an Aa1 rating to State University of Iowa's (SUI or University of Iowa) proposed $22.8 million of Recreational Facilities Revenue Refunding Bonds, Series S.U.I. 2017B (final maturity in 2034) to be issued through the Board of Regents, State of Iowa. The outlook is stable. Moody's maintains Aa1 and Aa2 ratings on over $900 million of outstanding debt issued by the university under various security pledges (including the University of Iowa Facilities Corporation, excluding University of Iowa Hospitals and Clinics).SUI's Aa1 rating reflects its solid market profile as the state's flagship university with nationally renowned programs, broad reach as a member of the Big Ten athletic conference, and the only public academic medical center in the State of 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 through University of Iowa Hospitals and Clinics (UIHC), high reliance on extremely competitive federal research funding and a need for continued investment in facilities and equipment.
The stable outlook reflects expectations of strong student demand, favorable operations with operating cash flow margin at around 12-13%, 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 UIHC's operating cash flow margins, leading to weak consolidated cash flow to cover debt service
Substantial borrowing without commensurate growth in revenue or reserves
Recreational Facilities Revenue Bonds are secured by Recreational Student Fees Revenue and Net Revenues of the Recreational Facilities System (system income after deduction of current expenses). Additionally, each Recreational Facilities bond issuance is secured by a Bond Reserve Fund, which the university will replenish as necessary. Student Fee Revenues and Net Revenues of the System, plus funds on deposit, are required to provide 1.25 times debt service coverage. FY 2016 coverage was 1.6 times, and future coverage is projected to remain healthy at 1.5-1.7 times over the next several years. Debt service coverage on other pledges remains healthy as of June 30, 2016:
Academic Building Revenue Bonds: 28 times coverage, no requirement
Athletic Facilities System Revenue Bonds: 5.56 times coverage compared to 1.25 minimum
Center for University Advancement Revenue Bonds: not applicable, lease backed, no requirement
Dormitory Revenue Bonds: 2.5 times coverage compared to 1.35 times required
Iowa Memorial Union Revenue Bonds: 2.3 times coverage compared to 1.2 times required
Parking System Revenue Bonds: 2.2 times coverage compared to 1.2 times required
Telecommunication System Revenue Bonds: 1.7 times coverage compared to 1.1 times required
UIFC Revenue Bonds: not applicable, lease backed, no requirement
Utility System Revenue Bonds: 2.4 times coverage compared to 1.2 times required
Use of Proceeds
Proceeds of the Recreational Facilities Revenue Refunding Bonds, Series S.U.I. 2017B will be used for the defeasance and advance refunding of the July 1, 2018 through July 1, 2034 maturities of the Recreational Facilities Revenue Bonds, Series S.U.I. 2009, and to pay the costs of issuing the bonds.
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 over 29,000 full-time equivalents and operations are large at $3 billion and growing.
The principal methodology used in these ratings was Global Higher Education published in November 2015. Please see the Rating 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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