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Rating Action:

Moody's assigns Aa2 to California State University's $1.1B Ser. 2015 Systemwide Rev. Bds.; outlook stable

06 Jul 2015

$5.9B pro forma rated debt

New York, July 06, 2015 --

Moody's Rating

Issue: Systemwide Revenue Bonds, Series 2015A; Rating: Aa2; Sale Amount: $1,101,225,000; Expected Sale Date: 07-14-2015; Rating Description: Revenue: Public University Broad Pledge

Issue: Systemwide Revenue Bonds, Series 2015B (Taxable); Rating: Aa2; Sale Amount: $29,805,000; Expected Sale Date: 07-14-2015; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service assigns a Aa2 to California State University's (The CSU or system) planned $1.1 billion Systemwide Revenue Bonds, Series 2015A (maturing in 2049) and Series 2015B (Taxable) (maturing in 2035) to be issued by the Trustees of the California State University. The outlook is stable. We also affirm the existing ratings.

SUMMARY RATING RATIONALE

The Aa2 rating for The CSU's Systemwide Revenue Bonds (SRBs) reflects the scale of the system which is the nation's single largest four-year higher education system, very strong student demand, ample unrestricted liquidity, improved state funding reflecting strengthening of California's economy, and management's demonstrated ability to manage operations through periods of revenue constraint.

Offsetting challenges are continued material reliance on appropriations from the State of California (Aa3 stable) and moderately high balance sheet leverage relative to comparably rated large systems or universities.

The Aa3 rating for the lease revenue bonds issued by the State Public Works Board for the benefit of The CSU reflects the bonds' lease structure and abatement risk.

OUTLOOK

The California State University's stable outlook is based on expectations of continued exceptional student demand, well-managed operations producing favorable cash flow and adequate debt service coverage, and maintenance of ample unrestricted liquidity.

WHAT COULD MAKE THE RATING GO UP

- Substantial growth of balance sheet reserves and unrestricted liquidity resulting in a greater cushion supporting debt

- Consistently stronger operations producing more robust cash flow

WHAT COULD MAKE THE RATING GO DOWN

- Significant increase in financial leverage

- Sustained liquidity decline

- Consistently weaker cash flow

OBLIGOR PROFILE

The California State University was created in 1960 by the Donahoe Higher Education Act, which reorganized higher education in California. Originally 12 schools, The CSU now has 23 campuses and eight off-campus centers. The campuses are located throughout the state and provide a broad array of undergraduate and an increasing number of graduate programs. With over 450,000 headcount enrollment, The CSU reports it is the largest single four-year university system in the nation.

LEGAL SECURITY

The SRBs (Aa2) are issued under a system-wide debt financing program with pledged revenue including gross revenue from various auxiliary and mandatory student fees. Total pledged revenue was $1.57 billion for FY 2014, covering SRB debt service over 6 times. There will be approximately $4.4 billion of Systemwide Revenue Bonds outstanding following the current issuance. The CSU has covenanted to not issue senior lien debt. There is a sum-sufficient rate covenant and no debt service reserve fund.

The lease revenue bonds' Aa3 rating (issued by the State Public Works Board) is based on the strength of The CSU's legal obligation to make rental payments from "first lawfully available funds". This is a departure from the past when the rating also reflected state appropriations earmarked for debt service. Effective FY 2015, the state revised its funding methodology to add $297 million, the amount that, in the past would have been specified for debt service, to The CSU's annual base appropriation; there is no longer a specific state appropriation to pay debt service on these bonds.

USE OF PROCEEDS

Proceeds of the Series 2015 SRBs will finance campus projects, refund certain outstanding SRBs or auxiliary bonds issued by one auxiliary organization of The CSU, refund outstanding commercial paper used to finance campus projects, fund capitalized interest and pay issuance costs.

RATING METHODOLOGIES

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The additional methodology used in lease-backed rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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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.

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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.

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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

Edith Behr
VP - Senior Credit Officer
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 to California State University's $1.1B Ser. 2015 Systemwide Rev. Bds.; outlook stable
No Related Data.
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