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Rating Action:

Moody's assigns Aa2 to University of Kansas' (KS) proposed Series 2021D; outlook stable

06 Apr 2021

New York, April 06, 2021 -- Moody's Investors Service has assigned a Aa2 rating to University of Kansas' (KS) proposed $67 million of Refunding Revenue Bonds, Series 2021D (University of Kansas Projects) to be issued through the Kansas Development Finance Authority. The bonds have an expected final maturity in 2038. Moody's also maintains a Aa2 issuer rating and Aa2 and A1 ratings on various series of outstanding bonds. As of June 30, 2020, the university had about $667 million of rated debt. The outlook is stable.

RATINGS RATIONALE

Assignment of University of Kansas' Aa2 rating and maintenance of its Aa2 and A1 ratings reflect its strong national brand, substantial scale, and close strategic ties to the State of Kansas. Its excellent strategic positioning as a flagship public university serving about 25,000 full-time equivalent students will continue to support longer-term enrollment stability and generous donor support. Further, substantial absolute wealth with total cash and investments topping $2.4 billion supports strong spendable cash and investments' coverage of both debt and expenses at 2.6x and 1.4x, respectively. Prospects for maintaining operating stability are supported by the university's large $1.35 billion revenue base and excellent revenue diversity. Through effective budget management, we expect the university to maintain operating cash flow margins in the 8-11% range for fiscal 2021 and longer-term operating performance stability. Management reports that enrollment is expected to be stable for fall 2021. Credit challenges include heightened student market headwinds, narrow operating performance, and continued business disruption caused by the coronavirus pandemic.

RATING OUTLOOK

The stable outlook reflects our expectations that KU will maintain balanced financial operations, strong financial reserve coverage of debt and expenses, and around 100 monthly days cash on hand.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Meaningful strengthening of the university's strategic positioning, evidenced in student demand, research growth, and fundraising

- Outsized growth in liquidity and wealth, further strengthening coverage of debt and operations

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Deterioration in operating performance or debt affordability

- Material decline in monthly days cash on hand

- Marked reduction in state financial support

LEGAL SECURITY

The university's general revenue bonds (Aa2 stable), including the proposed Series 2021D, are on parity and secured by a general pledge of all university revenues, excluding certain restricted revenue. For fiscal 2020, pledged revenues amounted to $811 million, or more than one-half of Moody's adjusted operating revenue. There is no debt service reserve fund.

The Series 2016 Lease Development Revenue Bonds (Aa2 stable) are secured by a loan agreement between the issuing authority and KU Campus Development Corporation (KUCDC), a nonprofit corporation controlled by the university. The university leased a portion of its campus designated for the project to KUCDC, which sublet the property back to the university for base rent equal to debt service. Base rental payments under the sublease are an unsecured obligation of the university, payable only from revenues of the university, excluding restricted revenues and state appropriated funds. The sublease is not subject to abatement.

The 2014E bonds (Aa2 stable) are unconditional obligations of the University of Kansas Center for Research, Inc., with a secured interest in its unrestricted gross revenue. In the event pledged revenues are insufficient to pay debt service, the university has covenanted to make unrestricted revenue available. For fiscal 2020, net pledged revenue of the Center for Research amounted to $20.7 million, which provided 18.8x coverage of maximum annual debt service.

The Series 2016C KU Medical Center Parking Facilities bonds (A1 stable) are secured by a pledge of gross revenue from parking facilities located on the Medical Center campus in Kansas City. KU covenants to adjust fees as needed to generate at least 1.15x debt service coverage. For fiscal 2020, the facilities generated $6.6 million of net revenue providing 2.35x annual debt service coverage. There is a $2.9 million cash funded debt service reserve fund.

USE OF PROCEEDS

Proceeds from the proposed 2021D bonds will be used to refund the outstanding Series 2011C and Series 2013G-1 bonds to achieve economic savings. Savings will be taken on a level basis and there will be no extension to the final maturity of the bonds.

PROFILE

University of Kansas (KU), the state's flagship university, is a comprehensive, research intensive university, offering a broad array of academic programs to more than 28,000 (head count) students at its main campus in Lawrence; medical center campuses in Kansas City, Wichita, and Salina; and in the greater Kansas City area at the Edwards Campus in Overland Park. KU is a member of the Big 12 Conference.

METHODOLOGY

The principal methodology used in this rating was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Christopher Collins
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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