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Rating Action:

Moody's assigns Aa2 to University of North Texas System's (TX) Series 2020A&B; outlook stable

12 Jun 2020

New York, June 12, 2020 -- Moody's Investors Service has assigned Aa2 ratings to the University of North Texas System's proposed fixed rate Revenue Financing System Refunding Bonds, which include $59.7 million of Series 2020A, maturing in 2033, and $55.3 million of Taxable Series 2020B, maturing in 2050. The bonds will be issued by the Board of Regents of the University of North Texas System. We maintain Aa2 ratings on approximately $792 million of outstanding rated debt and P-1 ratings on the system's commercial paper (CP) and extendable commercial paper (ECP) programs. The outlook is stable.

RATINGS RATIONALE

The assignment and maintenance of the Aa2 ratings incorporate 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 growth in total cash and investments, up almost 40% since fiscal 2015. The rating is tempered by recent softening of operating cash flow margins primarily due to increasing personnel costs and a planned debt increase of around $140 million through fiscal 2023, offset by around $46 million of average annual debt repayment over the next five years. Despite growth in fundraising, philanthropic support remains below the Aa2-median. Additionally, each of the system's campuses has unique growth strategies that will require disciplined fiscal and operational oversight controls to maintain financial and demand stability.

Further challenging the system's credit profile is the impact of the coronavirus outbreak and deteriorating global economic outlook. We regard the coronavirus outbreak as a social risk under our ESG framework. A recent federal aid program, the CARES Act, will provide some immediate relief for the system. Like most universities, UNTS has shifted to online classes. Favorably, summer 2020 enrollment is up significantly year over year. However, state appropriations, which account for almost one third of operating revenues, have been reduced slightly for fiscal 2020, with potential further reductions as the state grapples with the budgetary impact from the marked decline in economic activity. UNTS's scope, financial reserves and strong management contribute to its ability to manage through near-term fiscal challenges.

The P-1 rating on the system's 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.

RATING OUTLOOK

The stable outlook reflects that, despite recent growth in operating expenses and operating headwinds from the coronavirus outbreak, the university's cost-savings program will result in rebounding operating cash flow margins toward historical levels in fiscal 2021. The outlook also incorporates expectations of continued steady student demand and solid support from the state, even with modest reductions.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

-Sustained and material improvement of operating cash flow

-Substantial growth in wealth relative to debt and operations

-Further strengthening of brand evidenced by stronger student demand, research growth and sustained heightened philanthropy

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

-Inability to improve operating cash flow margins to historical levels

-Material cuts to state appropriations that are not offset through expense reductions or that lead to deterioration of competitiveness

-Significant debt issuance beyond current plans

LEGAL SECURITY

All Revenue Financing System 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 2019 totaled $1.05 billion, providing 13x coverage of pro forma maximum annual debt service ($80 million).

USE OF PROCEEDS

Proceeds of the Series 2020A and 2020B bonds are expected to be used primarily for the refunding of Series 2010, Series 2015, Series 2015C, Series 2012A and Series 2012B bonds. Some proceeds will also be used to cover a small property acquisition and the costs of issuance.

PROFILE

The University of North Texas System is a comprehensive public university system located in the Dallas-Fort Worth metropolitan area and is comprised of the flagship University of North Texas in Denton, which includes a new branch campus in fast-growing Frisco; University of North Texas Health Science Center in Fort Worth, which includes a new MD school in partnership with Texas Christian University; and the University of North Texas at Dallas, with its main campus located in southern Dallas and its law school in the heart of downtown. The system recorded fiscal 2019 operating revenues of $964 million and in fall 2019 served 39,131 full-time equivalent students, the majority of whom are at the flagship university in Denton.

METHODOLOGY

The principal methodology used in these ratings 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are 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_1133569.

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.

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.

Craig Sabatini
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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