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Rating Action:

Moody's assigns Aa3 to Boston College's $335M Ser. S and 2013 bonds; outlook stable

Global Credit Research - 07 Aug 2013

$926M rated debt including current offering

New York, August 07, 2013 --

Moody's Rating

Issue: Revenue Bonds Boston College Issue, Series S (2013); Rating: Aa3; Sale Amount: $155,000,000; Expected Sale Date: 08-13-2013; Rating Description: Revenue: 501c3 Unsecured General Obligation

Issue: Taxable Bonds, Series 2013; Rating: Aa3; Sale Amount: $180,000,000; Expected Sale Date: 08-13-2013; Rating Description: Revenue: 501c3 Unsecured General Obligation

Opinion

Moody's Investors Service has assigned a Aa3 rating to Boston College's $155 million of Series S (2013) tax-exempt bonds and $180 million of Series 2013 taxable bonds. The Aa3 rating reflects the university's excellent student market position, track record of financial discipline, successful fundraising, limited revenue diversity and elevated operating leverage. The outlook is stable. The Series S (2013) bonds will be issued by the Massachusetts Development Finance Agency. We have also affirmed the Aa3 rating on Boston College's (BC) prior revenue bonds.

SUMMARY RATING RATIONALE

The Aa3 rating and stable outlook reflect Boston College's excellent student market position, strong culture of financial discipline driving consistently high operating cash flow, healthy $1.9 billion of cash and investments, and philanthropic support. The university also benefits from an all fixed rate and amortizing debt structure. Challenges include high leverage with pro forma debt of $934 million up 27% from May 31, 2012, ongoing capital needs, limited revenue diversity and less wealth per student compared to reputational peers.

STRENGTHS

*Excellent student market position as a Jesuit, Catholic institution benefits BC with enrollment of over 13,000 full-time equivalent students and net tuition per student of $27,462 in fiscal 2012. Increasing geographic diversity points to the university's national reputation aided by strong educational outcomes and timely graduation rates.

*The university's management and board have demonstrated a long history of strategic and operational planning that has contributed to highly consistent and favorable operating results. A strong operating cash flow margin of 18.1% in FY 2012 produced debt service coverage of 2.7 times.

*Substantial $1.9 billion pool of cash and investments as of fiscal end 2012, 49% of which is unrestricted, underpins credit strength. Monthly days cash on hand remains uncommonly strong at 564 days for fiscal 2012.

*Solid donor support as the university has raised over $1 billion towards its $1.5 billion Light the World Campaign. The three-year average annual gift revenue of $87 million helps foster revenue diversity and build financial resources.

CHALLENGES

*BC has increasing leverage with pro forma debt of $934 million at 1.33 times fiscal 2012 operating revenue as compared to our median of 0.72 times for private universities. Expendable financial resources to pro forma debt of 1.21 times is also below Aa-rated peers.

*Relatively high reliance on tuition and auxiliary revenues (73% of operating revenues in FY 2012) places greater importance on the university's ability to sustain competitiveness for long-term financial health. Many of the universities BC competes with for students have more wealth per student and are able to offer more generous financial aid, heightening the need for BC to maintain its other competitive strengths including its Catholic identity, its urban location, along with its strong educational outcomes and timely graduation rates.

*While BC has no near term borrowing plans and the $180 million of taxable bond proceeds are expected to be used to fund campus projects over the next few years, its capacity for additional debt at the Aa3 rating level remains materially constrained. With $23 million of debt retired per year over the next half decade, we note the university's future debt capacity will be aided by its disciplined approach to amortizing debt.

Outlook

The stable rating outlook reflects our expectation that BC's student market position will continue to generate healthy net tuition revenue, philanthropic support will continue to support financial resource growth and that operating cash flow will remain uncommonly strong. The stable outlook also reflects expectations of no additional debt for the next two to three years and manageable borrowing beyond that period.

WHAT COULD MAKE THE RATING GO UP

Sustained growth in financial resources and increased revenue diversity could contribute to an upgrade.

WHAT COULD MAKE THE RATING GO DOWN

An increase in leverage or decline in operating cash flow performance could prompt downward rating pressure.

RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

Dennis M. Gephardt
Vice President - Senior Analyst
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

Edith F Behr
VP - Senior Credit Officer
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 Aa3 to Boston College's $335M Ser. S and 2013 bonds; outlook stable
No Related Data.

 

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