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Rating Action:

Moody's assigns Aa2 to Texas State University System (TX) Series 2019A&B; outlook stable

10 Oct 2019

New York, October 10, 2019 -- Moody's Investors Service has assigned Aa2 ratings to the Board of Regents of Texas State University System's (TSUS or the system) approximately $174 million Revenue Financing System Revenue and Refunding Bonds, Series 2019A, and $150 million Revenue Financing System Refunding Bonds, Taxable Series 2019B. The bonds are fixed rate, maturing in 2039 and 2038, respectively. At the same time, we have affirmed the Aa2 ratings on the system's approximately $1 billion of revenue financing system (RFS) bonds and the P-1 rating on the existing Commercial Paper Notes, Taxable and Tax-Exempt Series A. The outlook is stable.

RATINGS RATIONALE

The Aa2 rating incorporates the system's large and growing enrollment, serving over 67,000 full-time equivalent (FTE) students across seven component institutions throughout central Texas (Austin, Houston and southwest regions), supported by robust operating and capital support from the Aaa-rated State of Texas. Further supporting the Aa2 rating is the sizeable $1.3 billion scope of operations, $1 billion in cash and investments, and sound growth prospects in student demand. The rating is tempered by relatively high leverage, which is increasing with the Series 2019 financing, coupled with moderate financial resources and modest philanthropic support relative to Aa2-rated peers as well as a large net pension liability.

The short-term P-1 rating affirmation of the Series A CP program, which consists of extendable commercial paper (ECP) notes, primarily reflects the system's ability to access the market. In addition to the system's expected market access based on its Aa2 long-term rating, its growing pool of unrestricted cash and investments also supports the highest short-term rating.

RATING OUTLOOK

The stable outlook reflects strong state operating and capital support and continued steady student market strength translating into sound revenue growth to support rising debt service requirements.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Substantial growth in flexible financial reserves

- Consistently stronger operations and cash flow generation, and donor activity across all system institutions

- Stronger research activity presence at comprehensive universities

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Significant reductions in state financial support for operations or capital

- Sustained deterioration in operating performance

- Material increased in leverage beyond what is currently planned

- Reduction in liquidity

LEGAL SECURITY

All of the system's RFS debt and CP notes are on parity and secured by a broad pledge of revenues, including tuition, fees, and auxiliary revenues, and certain unappropriated funds and reserve balances but excluding state appropriations and other restricted funds. Pledged Revenues in fiscal 2018 totaled $927 million, providing 8.1x coverage of pro forma maximum annual debt service ($115 million).

The Extendable Tax-Exempt and Taxable Commercial Paper (ECP) Notes have initial maturity dates of 1 to 90 days following issuance. If the notes cannot be rolled on the Original Maturity Date, it is automatically extended to 270 days from the original issue date. This extension allows for a minimum of 180 days to refund the commercial paper with long-term debt or ensure liquidity assets are available to pay off the commercial paper on or before the extended maturity date. The extension to the Extended Maturity Date is not an event of default or a breach of any covenant. The ECP is not subject to redemption prior to its Original Maturity Date but is subject to redemption on any day during the extension period with five days notice.

Given the system's Aa2 rating and ability to access the market, the 180 day period would allow sufficient time to issue long-term debt to refinance the ECP notes. The system will annually adopt a resolution authorizing issuance of the maximum $240 million in revenue financing system bonds to redeem the entire ECP balance outstanding, as needed. While the P-1 rating primarily reflects the expected market access and management's procedures in the event of failed remarketing, it also incorporates the system's ample liquidity and ability to retire the ECP with its liquid assets well within the 180 day extendable period.

USE OF PROCEEDS

Proceeds of the Series 2019A and 2019B bonds are expected to be used to either directly finance or refinance a portion of CP notes used for capital projects; refund all or portions of the Series 2010, 2010A, 2011, 2012 and 2013 bonds based on market conditions; and pay costs of issuance. Financed capital projects are largely located at Sam Houston State University.

PROFILE

The Texas State University System is comprised of seven institutions, both four-year and two-year, located throughout central and southwest Texas. The largest are Texas State University in San Marcos and Sam Houston University in Huntsville. The system recorded fiscal 2018 Moody's adjusted operating revenue of $1.3 billion and served a headcount enrollment of over 86,000 students.

METHDODOLOGY

The principal methodology used in the long-term ratings was Higher Education published in May 2019. The principal methodology used in the short-term rating was US Bond Anticipation Notes and Related Instruments Methodology published in October 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.

Mary Cooney
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Shaffer
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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