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Rating Action:

Moody's assigns Aa2 rating to Mississippi Institutions of Higher Learning's $55.0 million Revenue Bonds, Series 2013 (Residence Hall Construction and Refunding Project) issued by Southern Mississippi Educational Building Corporation; outlook is stable

18 Apr 2013

IHL will have a total of $993 million pro forma rated debt outstanding, including commercial paper at full issuance

New York, April 18, 2013 --

Moody's Rating

Issue: Revenue Bonds, Series 2013 (Residence Hall Construction and Refunding Project); Rating: Aa2; Sale Amount: $55,000,000; Expected Sale Date: 5/1/2013; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service has assigned a Aa2 rating to Southern Mississippi Educational Building Corporation's (SMEBC) $55.0 million Revenue Bonds, Series 2013 (Residence Hall Construction and Refunding Project). At the same time we have affirmed the Aa2 ratings on bonded debt of Mississippi Institutions of Higher Learning - specifically issues for the Educational Building Corporations of Alcorn State University, Delta State University, Jackson State University, Mississippi State University, Mississippi Valley State University, the University of Mississippi, the University of Mississippi Medical Center, and the University of Southern Mississippi. We have also affirmed the P-1 rating for Mississippi State University Educational Building Corporation's commercial paper programs. The long-term rating outlook is stable.

SUMMARY RATING RATIONALE

The Aa2 rating for Mississippi Institutions of Higher Learning reflects the system's access to all legally available revenues to meet lease rental obligations funding the debt service for the bonds, the system's established market position as the public higher education provider in the state, favorable operating performance and a good financial resource cushion. Challenges are exposure to the healthcare industry through the system's operation of University of Mississippi Medical Center, modest system liquidity and ongoing campus capital needs. The system's stable outlook reflects expectations of continuation of the underlying favorable student market position, good financial resource profile and ongoing support from the State of Mississippi.

The P-1 rating for Mississippi State University's commercial paper program when issued as extendable commercial paper reflects the market access of the system as a regular debt issuer and its Aa2 long-term rating. Also supporting the rating is the pledged lease payments from Mississippi State University (and ultimately the system) as well as IHL's liquidity to meet any maturing commercial paper at the Extended Maturity Date in the event of a failed remarketing on the Original Maturity Date.

STRENGTHS

*Lease payments supporting long-term debt and commercial paper payable from Legally Available funds of Mississippi Board of Trustees of State Institutions of Higher Learning (IHL), which includes eight institutions as well as an academic medical center. Covenant from the IHL provides broad support from state governing authority which also approved the plans for the projects and their financing.

*Established market position as the dominant provider of higher education as the Mississippi public university provider with over 70,000 full-time equivalent (FTE) students and substantial research activity with $408 million of grant awards in FY 2012.

*Substantial level of financial resources with total financial resources of $1.83 billion for fiscal year (FY) 2012; expendable resources of $1.23 billion cushion pro-forma debt 1.19 times and operations 0.46 times.

*Positive operating performance and cash flow generation, with average operating margin of 2.0% at the system level for FY 2010-2012 and operation cash flow margin of 8.3% in FY 2012, both as calculated by Moody's.

*Generally good funding from Aa2-rated State of Mississippi representing 26% total operating revenues, as calculated by Moody's, for FY 2012, with a modest increase budgeted for the current FY 2013.

CHALLENGES

*Considerable patient care exposure from the University of Mississippi Medical Center representing a 26% share of FY 2012 operating revenues. UMMC reported generally breakeven performance for FY 2012 that is improved from a $20.8 million loss for FY 2011 on a GASB-reporting basis. UMMC's revenues are largely derived from Medicaid and Medicare

*Modest liquidity, with only 67 monthly days cash reported for FY 2011, amongst the lowest of Aa2-rated institutions.

*Ongoing needs to invest in capital facilities could drive future borrowing to remain competitive. Approved is up to $85 million to fund a stadium project at Mississippi State University, with other projects in the early planning stages.

*Goals to increase sponsored research funding likely to meet significant pressure as competition continues to heighten during a period of extremely large budget deficits that will likely pressure some federal research funding.

OUTLOOK

The stable outlook reflects expectations of continuation of the underlying favorable student market position, good financial resource profile and ongoing support from the state that provides the revenues supporting IHL's lease payments. We note that the IHL bonds issued for UMMC are separately secured from the debt issued for the other member universities' EBC. Although both are currently rated Aa2 with a stable outlook, the rating or outlook for one could be changed without impacting the other if pressure is expected on operating performance and debt service coverage, the liquidity profile or the strength of the pledged revenues relative to outstanding debt and debt service.

WHAT COULD MAKE THE RATING GO UP

Significant growth in financial resource base; further improvements in scope of research activities and student market position, evidenced by enrollment growth particularly from non-resident students, increasing net tuition per student revenues.

WHAT COULD MAKE THE RATING GO DOWN

Marked, sustained decline in operating performance resulting in lower operating cash flows; decrease in balance sheet financial resources; significant reductions in state support; material increase in debt relative to financial resources and operations.

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. An additional methodology used in the lease rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations December 2011.The additional methodology used in the commerical paper rating was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

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.

Diane F. Viacava
VP - Senior Credit Officer
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

Dennis M. Gephardt
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Aa2 rating to Mississippi Institutions of Higher Learning's $55.0 million Revenue Bonds, Series 2013 (Residence Hall Construction and Refunding Project) issued by Southern Mississippi Educational Building Corporation; outlook is stable
No Related Data.
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