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01 Aug 2018
New York, August 01, 2018 -- Moody's Investors Service has assigned Aa2 ratings to the University of North Texas System's (UNTS or the system) proposed fixed rate Revenue Financing System Refunding and Improvement Bonds, which include $143.78 million of Series 2018A, maturing 2050, and $21.865 million of Taxable Series 2018B, maturing 2027. The bonds will be issued by the Board of Regents of the University of North Texas System. Concurrently, we have affirmed the Aa2 ratings on the system's parity outstanding approximately $600 million of rated revenue financing system (RFS) bonds and the P-1 ratings on the system's commercial paper (CP) and extendable commercial paper (ECP) programs. The outlook is stable.
The Aa2 rating incorporates the system's excellent strategic positioning and presence as a large comprehensive public university system in the vibrant Dallas-Fort Worth area. The rating is further supported by robust operating and capital support from the Aaa-rated State of Texas and solid top line growth in student charges, with continued sound growth prospects in student demand. The rating is tempered by the near-term planned 20% increase in debt, coupled with more modest financial resource coverage of debt and operations relative to rated peers. Philanthropic support remains well below Aa2-medians with limited prospects for sizeable near-term gains. Additionally, each of the system's three campuses have unique growth strategies that will require disciplined fiscal and operational oversight controls to maintain financial and demand stability.
The P-1 rating on the system's outstanding CP Program reflects the strength of the system's self-liquidity program, with available assets providing adequate coverage of potential liabilities. The P-1 rating on the ECP notes primarily reflects the system's ability to access the market.
The stable outlook reflects continued strong state operating and capital support as well as 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 wealth relative to debt and operations
-Sustained and material improvement of operating cash flow
-Further strengthening of brand evidenced by stronger student demand, research growth and sustained heightened philanthropy
FACTORS THAT COULD LEAD TO A DOWNGRADE
-Any disruption in financial support from the state
-Sustained weakening of operating cash flow margins and debt service coverage
-Material debt issuance beyond current plans
All RFS debt, CP and ECP 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 2017 totaled $831 million, providing 10x coverage of pro forma maximum annual debt service ($81 million).
USE OF PROCEEDS
Proceeds of the Series 2018A and 2018B bonds are expected to be used for multiple new building projects and refunding all or portions of the CP and ECP notes, and to pay costs of issuance. Projects associated with the new money portion of the planned series include 15 projects around the system's multiple locations.
The University of North Texas System is a comprehensive public university system located in the Dallas-Fort Worth metropolitan area and is comprised of three component units: the flagship campus in Denton; the Health Science Center in Fort Worth; and the south Dallas campus and Downtown Dallas School of Law. The system recorded fiscal 2017 operating revenues of $926 million and in fall 2017 served 35,777 FTE students, the majority of whom are at the system's Denton campus.
The principal methodology used in the long-term ratings was Higher Education published in December 2017. The principal methodology used in the short-term ratings was Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in March 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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 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
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