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Rating Action:

Moody's assigns Aa2 rating to Bowdoin College's (ME) $128.5 million of Fixed-Rate Taxable Bonds, Series 2012; Outlook is stable

Global Credit Research - 20 Jun 2012

College will have $267.7 million of rated debt outstanding

New York, June 20, 2012 -- Moody's Rating

Issue: Taxable Bonds, Series 2012; Rating: Aa2; Sale Amount: $128,500,000; Expected Sale Date: 6/26/2012; Rating Description: 501c3 Unsecured General Obligation

Opinion

Moody's Investors Service assigned a Aa2 rating to Bowdoin College's $128.5 million of taxable bonds, Series 2012. The Series 2012 bonds are expected to have a bullet maturity in 2112. At the same time, we have affirmed the college's Aa2 issuer rating and the Aa2 ratings on $118.5 million of outstanding fixed-rate Series 2009A and B Revenue Refunding Bonds which were issued through the Maine Health and Higher Education Facilities Authority. The rating outlook is stable.

SUMMARY RATING RATIONALE: The Aa2 rating incorporates the college's superior market position as a highly selective liberal arts institution, prudent fiscal management, positive operating performance, history of fundraising success, and extensive financial resources. Offsetting these factors are the highly competitive environment which pressures future net tuition per student growth as well as a long-term oriented investment strategy and a more modest quasi endowment which results in lower unrestricted monthly liquidity relative to peer institutions. In addition, the current borrowing significantly increases leverage relative to Bowdoin's Aa2-rated peers and the college's pro-forma debt structure, including the current offering with a bullet maturity in 100 years, adds credit risk and is incorporated into the Aa2 rating.

STRENGTHS

*Small, but extremely selective undergraduate liberal arts college in Maine, with 1,775 full-time equivalent (FTE) students, strong 16% freshmen acceptance rate and 46% yield for fall 2011.

*Ample financial resources, with $1 billion of cash and investments, providing strong coverage of debt and operations; in FY 2011, expendable financial resources of $587 covered debt by 3.8 times and operations by 4.6 times.

*Prudent fiscal management leading to positive operating performance in recent years, with three-year average operating margin of 5% and operating cash flow margin of 16.7% in FY 2010, providing solid average annual debt service coverage of 3.5 times.

*Continued healthy philanthropic support with FY 2011 average gifts per student of $19,234 far exceeding the FY 2010 median for Aa-rated private colleges and universities of $12,234.

*Strong coordination between investment office and finance office.

*Largely fixed rate debt structure and sufficiently flexible and liquid reserves relative to variable rate debt, monthly unrestricted liquidity of $65 million as of June 30, 2011 translates into 204 monthly days cash on hand and 315% coverage of demand debt. Monthly liquidity is expected to improve with this debt issuance.

CHALLENGES

*New extremely long term debt structure offering less flexibility with approximately 46% of portfolio held in a 100-year bullet maturity with an optional make whole redemption provision; lack of principal amortization limits Bowdoin's future debt capacity absent substantial resource growth.

*Highly competitive environment among top-tier institutions combined with relatively small enrollment size highlights importance of maintaining the college's market position, focused financial aid initiatives and continued growth in net tuition per student.

*Significant operating leverage with pro-forma debt to operating revenues of a very high 2.1 times with this new issuance. The college will carry both the Series 2012 bonds and the Series 2009A bonds on the balance sheet until the Series 2009A bonds are redeemed, which is anticipated to occur in 2019. We note that this leverage will significantly decrease after the planned redemption of the bonds.

*Highly long-term investment strategy with a strong emphasis on absolute return limits near-term unrestricted liquidity; at June 30, 2011 monthly liquidity of $65 million represents a low 6.5% of total cash and investments. However, Moody's notes that Bowdoin's strategy has yielded very strong investment returns (9.4% over the past ten years as of 6/30/11), and that the college reports an additional $174 million of monthly liquidity within the endowment.

*Seven-year investment strategy for the $99 million of proceeds from the Series 2012A bonds intended to refund the Series 2009A bonds ($99 million) adds a further degree of market risk; if the investments do not perform as anticipated, Bowdoin will either have to refund the Series 2009A bonds out of its limited unrestricted funds, or continue to carry the debt on its balance sheet.

Outlook

The stable outlook incorporates Moody's expectation that Bowdoin will maintain an excellent student market position and strong resource coverage of debt and operations. We also expect that the college will remain committed to maintaining operational balance and focused on continued expense containment.

WHAT COULD MAKE THE RATING GO UP

Rapid growth of financial resource base relative to debt and expenses and increased revenue diversity, coupled with strengthening of operating performance

WHAT COULD MAKE THE RATING GO DOWN

Significant pressure on student demand; investment losses and increased debt levels resulting in weakening of balance sheet measures, in particular sizeable investment losses in the $99 million of Series 2012 bond proceeds ; decreases in monthly liquidity

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

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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Eva Bogaty
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
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Kimberly S. Tuby
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Releasing Office:
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JOURNALISTS: 212-553-0376
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Moody's assigns Aa2 rating to Bowdoin College's (ME) $128.5 million of Fixed-Rate Taxable Bonds, Series 2012; Outlook is stable
No Related Data.

 

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