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Rating Action:

Moody's assigns Aa2 to Mississippi Institutions of Higher Learning's $106M Series 2014 bonds; stable outlook

24 Mar 2014

$1.01B pro forma rated debt including full CP issuance

New York, March 24, 2014 --

Moody's Rating

Issue: Revenue Bonds, Series 2014A (New Facilities and Refinancing Project); Rating: Aa2; Sale Amount: $45,385,000; Expected Sale Date: 03-27-2014; Rating Description: Revenue: Public University Broad Pledge

Issue: Taxable Revenue Bonds, Series 2014B (New Facilities Project); Rating: Aa2; Sale Amount: $60,260,000; Expected Sale Date: 03-27-2014; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service has assigned a Aa2 rating to Mississippi Institution of Higher Learning's $106 million Revenue Bonds, Series 2014A and Taxable Series 2014B issued by Mississippi State University Educational Building Corporation (MSUEBC). At the same time we have affirmed the Aa2 ratings on bonded debt of Mississippi Institutions of Higher Learning (IHL or the system). We have also affirmed the P-1 rating for Mississippi State University Educational Building Corporation's commercial paper programs. The long-term rating outlook is stable.

SUMMARY RATING RATIONALE

The Aa2 rating for Mississippi Institutions of Higher Learning reflects the pledge of all legally available revenues to meet lease rental obligations funding the debt service for the bonds, IHL's student demand as the state's public university system, moderate leverage, favorable debt service coverage from operating cash flow and ample financial resource cushion. Challenges include patient care exposure through the operations of University of Mississippi Medical Center that include very high reliance on government payers, ongoing campus capital needs and challenging research funding trends. The stable outlook reflects expectations of continued favorable student demand, positive operations and cash flow generation, solid financial resource profile and ongoing support from the State of Mississippi.

The P-1 rating for Mississippi State University's commercial paper program when issued as extendable commercial paper reflects the market access of the system as a regular debt issuer and its Aa2 long-term rating. Also supporting the rating is the pledged lease payments from Mississippi State University (and ultimately IHL) as well as the system's liquidity to refund maturing commercial paper at the Extended Maturity Date in the event of a failed remarketing on the Original Maturity Date.

STRENGTHS

*The Aa2 rating reflect the IHL's well-established market position as Mississippi's public university system with over 70,000 full-time equivalent (FTE) students and substantial research activity with $343 million of grant awards in fiscal year (FY) 2013.

*The long-term and short-term ratings are supported by lease payments from Legally Available funds of Mississippi Board of Trustees of State Institutions of Higher Learning, which includes eight universities and an academic medical center in the state capital of Jackson.

*The system shows modest leverage, with expendable resources of $1.32 billion cushioning pro-forma debt 1.2 times and pro-forma debt to revenues of 0.39 times.

*Operations are consistently positive, with an 8.1% operating cash flow margin in FY 2013, as calculated by Moody's, and 3.14 times average debt service coverage.

*The Aa2-rated State of Mississippi has provided generally good funding, representing 24% total operating revenues for FY 2013, with a modest increase for the current FY 2014.

CHALLENGES

*IHL has considerable patient care exposure from the University of Mississippi Medical Center (UMMC) representing a 29% share of FY 2013 operating revenues. The center's revenues are largely derived from Medicaid and Medicare.

*The strategic goals to increase sponsored research funding is expected to face significant pressure from heightened competition and constrained to declining federal research funding. The pressures are reflected in the significant decline in awards during the past few years . New awards fell 34% between FY 2011 and FY 2013.

*The system has ongoing capital needs that could drive future borrowing to remain competitive.

OUTLOOK

The stable outlook reflects expectations of continuation of the favorable student demand, positive operations and cash flow generation, maintenance of flexible reserves and ongoing support from the State of Mississippi. IHL's bonds issued for UMMC have a separate security apart from that securing the other member universities' debt. Although both are currently rated Aa2 with a stable outlook, the rating or outlook for one could be changed without impacting the other if pressure is expected on operating performance and debt service coverage, the liquidity profile or the strength of the pledged revenues relative to outstanding debt and debt service.

WHAT COULD MAKE THE RATING GO UP

An upgrade could result from significant growth in balance sheet resources, growth in research activities, strengthening in student demand evidenced by enrollment growth, particularly from non-resident students, and increasing net tuition per student revenues.

WHAT COULD MAKE THE RATING GO DOWN

A rating downgrade could result from a sustained decline in operating performance resulting in lower operating cash flows and weaker debt service coverage, a decrease in balance sheet resources, significant reductions in state support and material increase in debt relative to financial resources and operations. A downgrade in UMMC's ratings could result from sustained deterioration in hospital operations.

RATING METHODOLOGIES

The principal methodology used for all ratings was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The principal methodology used in the commercial paper program rating was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. An additional methodology used for all ratings 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

Dennis M. Gephardt
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 Mississippi Institutions of Higher Learning's $106M Series 2014 bonds; stable outlook
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