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Rating Action:

Moody's assigns Aa2 rating to Mississippi Institutions of Higher Learning's (MS) revenue bonds; outlook stable

07 Sep 2022

New York, September 07, 2022 -- Moody's Investors Service has assigned a Aa2 rating to the Mississippi Institutions of Higher Learning's (MS) (MIHL) proposed $68 million Revenue Bonds, Series 2022 (New Facilities Project). The bonds will be issued by the University of Mississippi Educational Building Corporation (UMEBC), for the benefit of the University of Mississippi (Ole Miss), with an expected final maturity in fiscal 2053. We maintain MIHL's Aa2 issuer rating, Aa2 rating on MIHL's outstanding revenue bonds and P-1 rating for the Extendable Commercial Paper issued by the Mississippi State University Educational Building Corporation (MSUEBC). Proforma total debt currently stands at about $1.2 billion. The outlook is stable.

RATINGS RATIONALE

MIHL's Aa2 issuer rating reflects its role as the dominant provider of higher education in the State of Mississippi (Aa2 stable) with significant scale across its member institutions and campuses. Sizable and growing total wealth continues to provide good financial flexibility. Operating performance should remain relatively healthy in the near term due, in part, to a significant increase in state operating support for fiscal 2023, although it will be influenced by performance of the University of Mississippi Medical Center (UMMC).

Offsetting credit factors include MIHL's high reliance on patient care revenue provided by the UMMC, which continues to confront a challenging payor mix as well as rising nursing wages and inflationary impacts on supplies and pharmaceuticals.  Incremental enrollment declines have continued, in part, due to demographic challenges within the state.  Also, MIHL has a substantial debt-like liability from its participation in the state's underfunded multiple-employer defined benefit pension plans which adds significantly to total adjusted debt and overall leverage.

The assignment and maintenance of the Aa2 rating on MIHL's revenue bonds incorporates the MIHL Board of Trustees (Board) unconditional pledge to appropriate from all legally available funds to meet lease rental obligations funding the bond's debt service.

The P-1 rating on the MSUEBC's Extendable Commercial Paper reflects the market access of MIHL as a regular debt issuer and its Aa2 long-term rating. Also supporting the rating are the pledged lease payments from MSU (and ultimately the Board) as well as MIHL's liquidity to refund maturing commercial paper at the extended maturity date in the event of a failed remarketing. There is neither commercial paper currently outstanding nor definitive near-term plans for a new issuance.

RATING OUTLOOK

The stable outlook reflects good prospects 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 RATINGS

-     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 RATINGS

-     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 MIHL's Aa2 rating lies with the Board. However, the obligors are the various educational building corporations issuing the debt for their respective member universities and UMMC. Each university and the UMMC anticipates paying its debt service from Designated Revenues and Fund Balances.

The Board leases the projects from the various educational building corporations. If either the university or UMMC's funds are insufficient, the Board covenants to use legally available funds, including state appropriations, to make up the shortfall. For fiscal 2021, member university's Designated Revenues, including state appropriations but excluding UMMC, were $1.5 billion up slightly from the prior year.  UMMC reported Designated Revenues, including state appropriations, of approximately $1.5 billion relatively flat to the prior year.

The Board possesses the requisite authority, willingness and resources to ensure that timely debt payments are made. The Board's lease agreements run for the life of the related bonds. The lease payments are sufficient to pay principal (whether at maturity, prior redemption or by acceleration or otherwise) and interest and are not subject to abatement.  MIHL pays the lease payments directly to the Trustee.  The Board's ability to assign its interest in the leases is highly limited and requires written consent of the Trustee. MIHL's lease obligations supporting the bonds and MSU's Extendable Commercial Paper are on parity.

USE OF PROCEEDS

Proceeds of the Series 2022 bonds will be used to partially finance construction of a Science, Technology, Engineering and Mathematics building on the Ole Miss campus as well as to pay related costs of issuance of the Series 2022 bonds.

PROFILE

The twelve-member Board of MIHL, founded in 1943 by amendment to the state constitution, oversees all of Mississippi's eight public universities. The Board also oversees UMMC, the academic medical center located in Jackson, the state capital. In fiscal 2021, MIHL generated operating revenue of nearly $3.7 billion and enrolled approximately 67,000 FTE students as of fall 2021.

The UMEBC was created as a public non-profit corporation and is empowered through legislation to acquire, construct and equip facilities for Ole Miss and can finance such facilities through debt issuance with the debt service funded through lease payments from the Board. UMEBC's three board directors are also members of the Ole Miss leadership team.

METHODOLOGY

The principal methodology used in this rating was Higher Education Methodology published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/72158. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Jason Potts
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Rachael McDonald
Additional Contact
Housing
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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