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Rating Action:

Moody's assigns Aa1 to University System of Maryland's (MD) 2021 Series A&B bonds; outlook stable

29 Jan 2021

New York, January 29, 2021 -- Moody's Investors Service has assigned Aa1 ratings to the University System of Maryland, MD's (USMD) proposed $230 million Auxiliary Facility and Tuition Revenue Bonds, 2021 Series A and Refunding Series A (Tax-Exempt) and $108 million 2021 Refunding Series B (Taxable). Both issues are fixed rate and mature in 2051 and 2034, respectively. Concurrently we have affirmed the Aa1 ratings on approximately $1.1 billion of outstanding parity rated debt. The outlook is stable.

RATINGS RATIONALE

The assignment and affirmation of the Aa1 rating reflects University System of Maryland's statewide presence as the largest provider of four-year public higher education diversified among 11 institutions, with solid operating and capital support from the State of Maryland (Aaa stable). Excellent strategic positioning incorporates the system's substantial $5.2 billion scope of operations and diversity of revenue, including a large research enterprise, with disciplined fiscal oversight leading to sound cash flow and manageable leverage. The system's multiple institutions are facing various degrees of business disruptions caused by the coronavirus pandemic, which is a social risk under Moody's ESG framework due to implications for public health and safety. To date, the overall credit impact has been manageable given the system's expense oversight and elevated collaboration among institutions, in addition to federal revenue and relief funds. Ongoing challenges stem from state-imposed tuition affordability priorities and modest fundraising leading to comparatively moderate financial reserves, as well as a competitive student market and federal research funding environment. The state's large unfunded pension liability adds longer term expense pressure.

RATING OUTLOOK

The stable outlook reflects our expectation that the system will manage through near term operating performance disruptions maintaining positive operations, with continued state operating and capital support, modest growth in financial resources and manageable plans for future borrowing under the stewardship of a strong management team.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

-Substantial growth in spendable cash and investments to provide stronger support of the very large expense base

-Ongoing notable strengthening of brand evidenced by even stronger student demand, research growth and sustained heightened philanthropy

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

-Significant deterioration in operating performance and reserves relative to peers

-Substantial reductions in state financial support for operations or capital

-Changes in capital funding strategy, with increasing financial leverage

LEGAL SECURITY

The Auxiliary Facility and Tuition Revenue Bonds are payable from a broad pledge of tuition revenues and certain auxiliary facility fees, with total pledged revenues of $1.8 billion in fiscal 2020. The pledged revenues provide a very strong 12.0x coverage of maximum annual debt service (roughly $139 million), which well exceeds the rate covenant and additional bonds test of 2.0x, respectively.

USE OF PROCEEDS

Proceeds of the 2021 Series A&B bonds will be used to fund approximately $240 million of approved capital projects among system institutions; refund all or portions of the Series 2009D, 2010C, 2011A, 2011B, 2012C and 2014A bonds; and pay costs of issuance.

PROFILE

The University System of Maryland comprises 11 of the 13 four-year degree-granting public higher education institutions in Maryland. In fiscal 2020, the system recorded $5.4 billion in operating revenue and in fall 2020 served an enrollment of 123,956 full-time equivalent (FTE) students.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Mary Cooney
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

Dennis Gephardt
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.
© 2021 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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​
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