Note: On January 9, 2013, the report was revised as follows: Added an additional source of information to the third paragraph of the Regulatory Disclosures section:
confidential and proprietary Moody’s Investors Service information. Revised as follows:
University will have $795 million of rated debt including current issuance
New York, September 07, 2012 --
Moody's Rating
Issue: General Revenue Bonds, Series 2012-A (Tax-Exempt,
Non-AMT); Rating: Aa2; Sale Amount: $250,660,000;
Expected Sale Date: 09-25-2012; Rating Description:
Revenue: Public University Broad Pledge
Issue: General Revenue Bonds, Series 2012-B (Taxable);
Rating: Aa2; Sale Amount: $21,315,000;
Expected Sale Date: 09-25-2012; Rating Description:
Revenue: Public University Broad Pledge
Opinion
Moody's Investors Service has assigned a Aa2 rating to The University
of Alabama's $272 million of Series 2012-A and Series
2012-B General Revenue Bonds. The rating outlook for the
university is stable. We have affirmed the existing Aa2 ratings
on the university's prior General Revenue bonds.
SUMMARY RATING RATIONALE
The Aa2 rating reflects The University of Alabama's strong student
market position and ability to attract non-resident students.
The rating also reflects the university's strong operating cash
flow, philanthropic support and healthy flexible reserves.
Credit challenges include elevated operating leverage, limited revenue
diversity following declines in state support and limited track record
in sponsored research activity.
STRENGTHS
*Markedly growing enrollment with notable pricing power. With
29,625 full-time equivalent students in fall 2011 (up 24%
from 2007), the university's market strength has translated into
large increases in net tuition revenue, which more than doubled
between fiscal year (FY) 2012 (preliminary, unaudited) and 2007
to $340 million, aided by non-residents students who
pay 2.5 times the resident tuition rate and made up 51%
of the fall 2011 incoming class.
*Uncommonly strong cash flow generation from operations. The
operating cash flow margin of 18.6% in FY 2011 (as calculated
by Moody's) provided debt service coverage of 3.2 times.
*Solid financial resource cushion with expendable financial resources
of $758 million at the end of FY 2011. Expendable financial
resources cushion pro forma debt 0.83 times and operations by 1.02
times. Monthly liquidity at September 30, 2011 of $535
million translates to 280 days cash on hand.
*Good fundraising strength with average gifts per student of $2,929
in fiscal years 2009 through 2011.
CHALLENGES
*Expected enrollment growth and enhanced standards for upgraded student
facilities will continue to drive borrowing with pro forma debt expected
at 1.1 times FY 2011 revenues. The university has received
limited state capital support and has pro forma debt per student of $30,711,
well above our median for Aa2-rated public colleges and universities
of $15,977.
*Volatile state funding environment with FY 2012 appropriations at
just 73% of FY 2008 funding, although a new state of Alabama
funding reserve mechanism should reduce volatility in the future.
*Plans to increase sponsored research activity at the university,
which lags that of peers, is likely to face stiff competition.
Research expenditures of $47.9 million in FY 2011 remain
fairly limited for a flagship university.
Outlook
The stable outlook is based on continued strengthening of the student
market position and sound university operating performance as well as
resource growth keeping pace or outpacing increases in debt.
WHAT COULD MAKE THE RATING GO UP
Material growth in financial resource base outpacing additional debt;
further improvements in scope of research activities and student market
position.
WHAT COULD MAKE THE RATING GO DOWN
Marked decline in operating cash flow; significant reductions in
financial resources including flexible reserves; inability to increase
net tuition revenue.
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 information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
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Please see Moody's Rating Symbols and Definitions on the Rating Process
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of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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on our website www.moodys.com for further information.
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.
Dennis M. Gephardt
Vice President - Senior Analyst
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
Mary Katherine Cooney
AVP - Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Aa2 rating to University of Alabama's $272 million Series 2012-A and Series 2012-B General Revenue Bonds; outlook is stable
