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Rating Action:

Moody's assigns Aa1 to University of Nebraska's $19M Rev. Refunding Bonds, Series 2015; outlook stable

19 Feb 2015

$703M rated debt

New York, February 19, 2015 --

Moody's Rating

Issue: Revenue Refunding Bonds, Series 2015 (University of Nebraska at Kearney Student Facilities Project); Rating: Aa1; Sale Amount: $19,110,000; Expected Sale Date: 02-24-2015; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service assigns a Aa1 to University of Nebraska's $19 million of Revenue Refunding Bonds, Series 2015 (maturing in 2030). At the same time, we are affirming the Aa1 rating on outstanding revenue bonds secured by the Master Trust Indenture, University of Nebraska Facilities Corporation and Nebraska Utility Corporation Bonds, and The rating outlook is stable.

SUMMARY RATING RATIONALE

The Aa1 rating reflects the university's strong student demand as the leading provider of four-year higher education in the state of Nebraska, as well as its consistently positive operating performance and cash flow through conservative financial management and centralized budget oversight; and diversified revenue base.

Also incorporated into the rating is increased competition for research funding and expected ongoing capital needs.

OUTLOOK

The stable outlook reflects our expectation that the university's financial resource base will benefit from fundraising and positive operations and that future borrowing plans will be manageable, with a sizeable amount of principal payments made annually. We anticipate that the university will maintain its strong student market position and that projections for future debt service coverage from pledged revenues will be sufficient.

WHAT COULD MAKE THE RATING GO UP

• Significant growth of liquid financial resources given the university's large expense base

• Persistent improvement to operating cash flow

WHAT COULD MAKE THE RATING GO DOWN

• Substantial increase in leverage without commensurate growth in financial reserves

• Sustained erosion of cash flow

• Deterioration of the state's credit quality

OBLIGOR PROFILE

The University of Nebraska, established in 1869, is the land grant and flagship university for the state and a member of the prestigious Big Ten athletic conference. The university has four campuses, including academic campuses in Lincoln, Omaha, and Kearney, as well as a medical center in Omaha. The Lincoln campus serves as the state's flagship and land grant university, and the Omaha campus is the second largest university in the state. The university is large with nearly 51,000 headcount, and almost $2 billion of operating revenue.

LEGAL SECURITY

The Series 2015 (University of Nebraska at Kearney Student Facilities Project) bonds are being issued through the Master Trust Indenture (MTI) structure, which is secured by a Master Note that is payable from the Pledged Revenues of the Obligated Group created by the MTI. The Obligated Group includes many auxiliary facilities located on the System's Lincoln, Kearney, and Omaha campuses as well as certain mandatory student fees generated by students at those campuses. The university has the ability to add new members to the Obligated Group and issue additional debt under the MTI in the future if it is able to demonstrate maintenance of at least 1.15 times debt service coverage on the MTI debt. Including this series, the university has approximately $427 million of MTI debt outstanding. MTI debt service coverage was 1.6 times in FY 2014. The university is projecting 1.6-1.7 times coverage for FYs 2015-- 2017.

The university has $276 million of outstanding bonds issued through the University of Nebraska Facilities Corporation that are payable solely from payments to be made by the Board of Regents of the University of Nebraska pursuant to lease agreements. The facilities corporation was established to provide the university a vehicle for issuing debt for purposes other than the four statutorily allowable circumstances in the MTI. The Board's payments per the lease agreements are an absolute and unconditional obligation, also payable from the University Cash Fund and other legally available funds.

Approximately $22 million of Nebraska Utility Corporation (NUCorp) bonds are secured by payments made pursuant to an energy and utility service agreement between the Board of Regents of the university and NUCorp. The university's payments under the agreement, including payments to cover debt service, are absolute, unconditional, and irrevocable, and the obligation to make payments remains in full force even if the services are not provided. The university must make all payments under the agreement from any legally available funds including the University Cash Fund. Given the essentiality of the facilities and services provided by NUCorp. to the operation of the University of Nebraska-Lincoln, the university has a very strong incentive to continue making payments under the agreement.

Management reports that the university had $492 million in its cash fund and other legally available funds as of June 30, 2014 compared to approximately $290 million of total debt backed by the University Cash Fund.

USE OF PROCEEDS

Proceeds of the Series 2015 bonds will be used to refund the University of Nebraska at Kearney Student Fees and Facilities Revenue Bonds, Series 2006, fund a debt service reserve account, and to pay costs of issuance.

RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

Eva Horton Bogaty
Vice President - Senior Analyst
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

Eugene Bradley Spielman
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 University of Nebraska's $19M Rev. Refunding Bonds, Series 2015; outlook stable
No Related Data.
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