New York, February 18, 2022 -- Moody's Investors Service has assigned a Aa2 rating to Mississippi Institutions of Higher Learning's (MIHL) proposed $78.6 million Taxable Revenue Refunding Bonds, Series 2022 (Mississippi State University Facilities Refinancing). The bonds will be issued by Mississippi State University Educational Building Corporation (MSUEBC) for the benefit of Mississippi State University. We maintain the Aa2 issuer-level rating for the MIHL, the Aa2 rating on MIHL's outstanding revenue bonds, and the P-1 for the Extendable Commercial Paper issued by MSUEBC. The outlook is stable.
RATINGS RATIONALE
Maintenance of the Aa2 issuer rating reflects MIHL's sizeable and growing total wealth that continues to provide good financial flexibility and the system's significant scale across its member institutions and campuses, with operating revenue of nearly $3.7 billion in fiscal 2021. Operating performance is expected to remain relatively healthy in the near term, in part due to an increase in state appropriations in fiscal 2022, although the system maintains a high reliance on patient care revenue provided by the University of Mississippi Medical Center (UMMC), which continues to confront a challenging payor mix. The system's strengths are offset by a substantial debt-like liability from its participation in the state's underfunded multiple-employer defined benefit pension plans, which adds significantly to the system's total adjusted debt and overall leverage. Additionally, despite the system's status as the dominant provider of higher education in the state of Mississippi (Aa2 stable), incremental enrollment declines have continued, in part due to demographic challenges within the state.
Assignment and maintenance of the Aa2 revenue bond ratings incorporate MIHL board's unconditional pledge to appropriate from all legally available funds to meet lease rental obligations funding the bonds' debt service.
The P-1 rating for MSUEBC's 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 IHL) as well as the system's liquidity to refund maturing commercial paper at the Extended Maturity Date in the event of a failed remarketing. Currently, there is neither any commercial paper outstanding, nor definitive near-term plans to issue commercial paper.
RATING OUTLOOK
The stable outlook reflects Moody's expectations that MIHL, including UMMC, will continue to produce healthy operating performance as effects of the pandemic continue to subside while maintaining sound unrestricted liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
- Significant growth in total cash and investments and liquidity at a rate exceeding Aa2-rated public university peers
- Sustained stronger operating performance and cash flow
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Material reduction in state support or increase in required state pension plan contributions
- Sustained deterioration of operating performance, including weaker operations at UMMC
- Additional substantial debt absent offsetting growth in total wealth and stronger operating performance
LEGAL SECURITY
The ultimate debt service responsibility and driver for the system's Aa2 rating lies with the IHL's Board of Trustees (the board), although the obligors are the various Educational Building Corporations issuing the debt for the system's member universities and UMMC. Each university and UMMC anticipates paying its debt service from Designated Revenues and Fund Balances. If either the university's or UMMC's funds are insufficient, the board covenants to use legally available funds, including state appropriations, to make up the shortfall. IHL's board possesses the requisite authority, willingness, and resources to ensure that timely debt payments are made. IHL's lease obligations supporting its bonds and MSU's Extendable Commercial Paper are on parity.
University Designated Revenues, including state appropriations but excluding UMMC, are $1.5 billion in fiscal 2021, up slightly from the previous year. UMMC reported Designated Revenues for fiscal 2021 of approximately $1.5 billion, relatively flat to fiscal 2020.
The board's lease agreements run for the life of the related bonds. The lease payments are sufficient to pay principal (whether at maturity or prior redemption or by acceleration or otherwise) and interest and are not subject to abatement. IHL pays the lease payments directly to the Trustee. The board's ability to assign its interest in the lease is highly limited and requires written consent of the Trustee.
USE OF PROCEEDS
Proceeds from the Series 2022 bonds will be used to refinance Mississippi State University's outstanding Series 2013, Series 2014A, and Series 2014B bonds and pay the costs of issuance.
PROFILE
The twelve-member Board of Trustees of the Institutions of Higher Learning, founded in 1943 by amendment to the state constitution, oversees all of Mississippi's eight public universities. The board also oversees University of Mississippi Medical Center, the academic medical center located in Jackson, the state's capital. In fiscal 2021, MIHL generated operating revenue of nearly $3.7 billion, and enrolled roughly 67,000 FTE students as of fall 2021.
METHODOLOGY
The principal methodology used in this rating was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. 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.
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