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Rating Action:

Moody's assigns Aa1 to Washington University's (MO) Series 2020A; outlook stable

20 Mar 2020

New York, March 20, 2020 -- Moody's Investors Service has assigned a Aa1 rating to Washington University's (MO) $450 million Taxable Educational Facilities Revenue Bonds (Washington University) Series 2020A. Moody's also affirms the Aa1 and Aa1/VMIG 1 ratings on $1.9 billion of outstanding parity debt issued by the university through the Missouri State Health and Educational Facilities Authority. The outlook is stable.

RATINGS RATIONALE

The Aa1 rating reflects Washington University's excellent market position as a comprehensive and nationally prominent academic, medical and research institution. The university benefits from substantial wealth and strong financial flexibility, exceptional student demand, and robust governance policies around fiscal operations, capital planning and risk management. The university's $10.1 billion of total cash and investments is supported by deep philanthropic support, consistently strong operating results and favorable long term investment performance. The university further benefits from a diverse revenue base that leverages its strong clinical partnership with BJC Health System (Aa2 stable) and its leadership position in NIH research funding.

Offsetting these strengths are sizable, yet comparatively narrow spendable reserves relative to debt and expenses. This has resulted in financial leverage and reserve coverage of annual operations below that of similarly rated peers. Significant capital investment undertaken at both the main Danforth campus and the Medical Center campus has caused outstanding debt to rise a substantial 60% (inclusive of Series 2020) since 2015. The university's more constrained liquidity relative to academic peers and rating medians is susceptible to contraction in the current investment environment, combined with potential liquidity constraints from a notable level of unfunded capital commitments.

The affirmation of the VMIG 1 ratings reflects the strength of the underlying rating as well as the standby purchase agreements supporting the bonds.

RATING OUTLOOK

The stable outlook for Washington University incorporates Moody's base case macroeconomic scenario, including that disruption in economic activity in the first half of the year will be followed by some recovery in the second half, and that the spread of the coronavirus will weaken over the spring and summer. The outlook also reflects expectations that careful fiscal stewardship, prudently managed capital planning, and strong donor engagement will continue to support the university's extensive strategic goals and operating performance. Additionally incorporated is Washington University's deep resource base to manage through current operating and market challenges that pose potential short term disruption to the university's academic, research and healthcare operations. Several plausible developments related to coronavirus could lead to a more negative scenario that would impact enrollment and financial reserves into fiscal 2021, and could pressure the rating or outlook downward.

FACTORS THAT COULD LEAD TO AN UPGRADE

-Growth in wealth and liquidity that outpaces Aa1 peers and brings the university's resources to debt in line with Aaa peers

FACTORS THAT COULD LEAD TO A DOWNGRADE

-Materially weakened operating performance especially if combined with narrowing liquidity

-Material negative changes in the funding environment for healthcare and research that impacts cash flow and liquidity

-For the VMIG 1 rating, a decline in the short-term Counterparty Risk Assessment below P-1(cr) of the various banks

LEGAL SECURITY

The bonds are unsecured general obligations of the university

USE OF PROCEEDS

Proceeds from the Series 2020 bonds will be used primarily as initial funding for the construction of the new Neuroscience Research Facility at the medical campus, as well as the advance refunding of outstanding Series 2011 A&B bonds.

PROFILE

Washington University in Saint Louis is a comprehensive private university ranked among the top institutions nationally for academics and research. The university has an enrollment of approximately 15,000 full-time equivalent students across its undergraduate, graduate and professional schools. The Washington University Medical Center, the highly-regarded academic medical center affiliated with Barnes-Jewish Hospital and St. Louis Children's Hospital, greatly broadens the scope of the school of medicine's activities, with more than 655,000 inpatient and 1.4 million outpatient visits and a robust and growing $474 million in NIH-awarded research in fiscal 2019.

METHODOLOGY

The principal methodology used in the long-term ratings was Higher Education published in May 2019. The principal methodology used in the short-term ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

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.

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.

Jeffrey Kaufmann
Lead Analyst
Housing
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.
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