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I AGREE
10 Jul 2013
System has $4.7B of rated debt including current offering and commercial paper at $200M full authorization
New York, July 10, 2013 -- Moody's Rating
Issue: Systemwide Revenue Bonds, Series 2013A; Rating:
Aa2; Sale Amount: $381,000,000; Expected
Sale Date: 07-16-2013; Rating Description:
Revenue: Public University Broad Pledge
Opinion
Moody's has assigned a Aa2 rating to California State University's $381
million Systemwide Revenue Bonds, Series 2013A. The rating
outlook is stable. At the same time, we have affirmed the
existing ratings. The sale amount may be lower subject to market
conditions.
SUMMARY RATINGS RATIONALE:
The Aa2 rating for California State University (the "trustees",
the "system" or "the CSU") reflects its strong market position and student
demand as the nation's single largest four-year higher education
system, ample unrestricted balance sheet liquidity and its ability
to weather substantial state funding reductions through significant tuition
increases and launching expense management initiatives. Other strengths
are anticipation that the state will continue to show improving economic
and revenue trends, as well as an expectation of moderation of the
system's debt issuance. Offsetting the strengths are continued
material reliance on state appropriations from State of California (rated
A1, stable) for operating support 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 incorporates the strength of the
system's pledge to make rental payments and the historical practice of
the State of California to include funds for payment in its annual budget
for the system. The state's involvement in these transactions and
its history of including funds for payment of debt service as a line item
appropriation in its budget add an additional degree of credit strength.
However, as the lease structure of the bonds is weaker than the
CSU's Systemwide Revenue Bonds, the obligations are rated
Aa3, or one notch below the Systemwide Revenue Bonds' Aa2
rating.
STRENGTHS:
*Key credit strength of strong student demand driven by the system's
23 campuses located throughout the state, as well as its established
access mission. Enrollment is over 370,000 full-time
equivalent (FTE) students for fall 2012 with expectations of growth for
the upcoming fall 2013 semester.
*Shift in revenue contributors with rising student-related
revenues against declining state funding. Tuition and auxiliary
revenues rose to 44% of total operating revenues for fiscal year
(FY) 2012 from 32% in FY 2008 while state funding fell to 30%
from 45% over the same time period, with the trend projected
to continue for the current FY 2013.
*Ample balance sheet resources, with $3.80 billion
of total financial resources for FY 2012 that is up from $3.7
billion the prior year; unrestricted monthly liquidity of $2.85
billion is up from FY 2011 and is projected to be consistent or better
for FY 2013.
*Strong central financial and budget oversight producing favorable
operating cash flow to manage through substantial state funding cuts,
including implementing fee increases, enrollment caps and expense
management initiatives as needed. FY 2012 cash flow declined to
10.1% from 14.2% in FY 2011 due to a substantial
$750 million cut in state funding but the system projects improved
performance for the recently closed FY 2013 ending June 30, 2013.
*Active system central governance and oversight, coupled with
increased operating independence, including a centralized debt management
function and capital needs assessment, ability to retain and invest
student fee revenues and autonomy in setting tuition and fees.
CHALLENGES:
*History of deep state funding cuts through FY 2012 totaling nearly
$970 million or 31% from FY 2008 to FY 2013. The
system implemented large tuition increases during that time to substantially
fund the revenue gap. Despite the decrease, CSU still shows
significant reliance on state funding for operations with state funding
representing about 30% of FY 2012 total revenues.
*Rising leverage from debt issuance, with expendable resources
to pro-forma debt (including full commercial paper issuance of
$200 million) of 0.59 times and pro-forma debt-to-revenues
of 0.74 times (including the State Public Works Board bonds for
which the state provides debt service payments in its appropriations).
*Expected ongoing debt issuance to fund continuing capital needs requiring
continued pledged revenue growth to support increasing debt service.
OUTLOOK
The stable outlook for The California State University is based on expectations
of continued exceptional student demand, well-managed operations
producing favorable cash flow providing ample debt service coverage and
the ability to manage through constrained or reduced state support,
and maintenance of ample unrestricted balance sheet liquidity.
Also factored into the outlook is the anticipation of the state reporting
continued trend improvement in economic and revenue indicators.
WHAT COULD MAKE THE RATING GO UP
An upgrade to a Aa1 is currently not likely in the near to medium term
given the state's A1 GO rating. Any upgrade could be driven
by substantial growth of financial resources and unrestricted liquidity
that results in a greater cushion supporting debt; sustained improvement
in philanthropic support; consistently positive operating performance
and strong operating cash flow; ability to continue to grow net tuition
revenues with no negative impact on student demand; upgrade of State
of California GO rating.
WHAT COULD MAKE THE RATING GO DOWN
Weakened student market position from either declining enrollment or failure
to grow net tuition revenues; liquidity decline from operating losses;
state funding cuts or payment deferrals; inability to increase student
tuition and fee revenues or implement expense control initiatives to offset
state funding cuts, resulting in weakened operating cash flow and
debt service coverage; downgrade of State of California GO rating;
additional borrowing without compensating resource and revenue growth
RATING METHODOLOGIES
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 rating the State Public Works Board Bonds
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.
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
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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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
Eva Bogaty
Vice President - Senior 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 to California State University's $381M Systemwide Revenue Bonds, Series 2013A; outlook stable
No Related Data.
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