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Rating Action:

Moody's assigns Aa2 to California State University's $744M Series 2014 Systemwide Rev. Bonds; outlook stable

25 Jul 2014

$5.2B rated debt including CP at full issuance

New York, July 25, 2014 --

Moody's Rating

Issue: Systemwide Revenue Bonds, Series 2014A; Rating: Aa2; Sale Amount: $744,235,000; Expected Sale Date: 7/31/2014; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Services assigns a Aa2 rating to California State University's $744 million Systemwide Revenue Bonds, Series 2014A. The rating outlook is stable. At the same time, we are affirming the existing ratings.

SUMMARY RATINGS RATIONALE: The Aa2 rating and stable outlook for the Systemwide Revenue Bonds (SRBs) of California State University (the "trustees", the "system" or "the CSU") reflects very strong student demand as the nation's single largest four-year higher education system, ample unrestricted liquid resources, improved state funding reflecting strengthening of California's economy, and the demonstrated ability to manage operations through prior substantial state funding reductions. Offsetting challenges are continued material reliance on state appropriations from State of California (rated Aa3, 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 provide debt service funding. The Aa3 rating is one notch below the Systemwide Revenue Bonds, reflecting the bonds' lease structure.

STRENGTHS

*The system's key credit strength is the strong student demand and access mission at its 23 campuses located throughout the state, with enrollment of nearly 381,000 full-time equivalent (FTE) students for fall 2013.

*Financial resources are ample, with $4.1 billion of total financial resources for FY 2013 and unrestricted monthly liquidity of $2.8 billion.

*The CSU has strong central financial and budget oversight producing favorable operating cash flow with recent expense management initiatives.

*Strong management team demonstrating best practices for governance and management including active central governance and oversight, including a centralized debt management function and capital needs assessment.

CHALLENGES

*Balance sheet leverage is high following substantial debt issuance in recent years, with expendable resources to pro-forma debt (including full commercial paper issuance of $300 million) of 0.55 times and pro-forma debt-to-revenues of 0.82 times (including the State Public Works Board bonds and CP at full $300 million authorization).

*Future debt issuance will be needed to fund continuing capital needs requiring sustained pledged revenue growth to support increasing debt service.

*State funding from the Aa3-rated state accounts for 29% of FY 2013 operating revenues and has been volatile as The CSU endured 31% of cuts from FY 2008 to FY 2013 but saw increases in FY 2014 and FY 2015.

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 and ample debt service coverage and maintenance of healthy unrestricted liquidity.

WHAT COULD MAKE THE RATING GO UP

A rating upgrade could be driven by substantial growth of financial resources and unrestricted liquidity resulting in a greater cushion supporting debt, stronger operating performance with more robust operating cash flow and ability to continue to grow net tuition revenues with no negative impact on student demand.

WHAT COULD MAKE THE RATING GO DOWN

A rating downgrade could be driven by additional borrowing without resource and revenue growth, decline in liquidity, declining enrollment or failure to grow net tuition revenues, consistently weaker cash flow, or a change in the state pension plan requiring in higher pension contributions for the system.

RATING METHODOLOGY

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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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

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.

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

Edith F 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 $744M Series 2014 Systemwide Rev. Bonds; outlook stable
No Related Data.
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