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Rating Action:

Moody's assigns Aa3 to Georgia Tech Facilities, Inc.'s refunding Series 2019A and 2019B at Georgia Institute of Technology; outlook stable

08 Aug 2019

New York, August 08, 2019 -- Moody's Investors Service has assigned Aa3 ratings to Georgia Tech Facilities Inc.'s proposed $39.7 million Georgia Tech Facilities Refunding Revenue Bonds, Series 2019A (fixed rate, maturing 2032) and $30.5 million Georgia Tech Facilities Refunding Revenue Bonds, Series 2019B (fixed rate, maturing 2040). The bonds will be issued through the Development Authority of Fulton County, GA. We maintain Aa3 ratings on approximately $350 million of Georgia Tech Facilities, Inc. revenue bonds supported by rental agreements with the Board of Regents of the University System of Georgia on behalf of Georgia Institute of Technology (Georgia Tech). The outlook for Georgia Institute of Technology is stable and the outlook for Georgia Tech Facilities, Inc. has been revised to stable from positive.

RATINGS RATIONALE

The Aa3 rating reflects the strength of the expected source of repayment, an annually renewable lease agreement with the Board of Regents of the University System of Georgia (USG, Board of Regents or University System of Georgia), along with the general obligation of Georgia Tech Facilities, Inc., a nonprofit that supports constructing and financing buildings for Georgia Institute of Technology. The rating also incorporates the fundamental credit strength of Georgia Tech, for which the facilities were constructed. Georgia Tech's excellent brand and reputation as a globally prominent technological research university, demonstrated by impressive student demand and significant research activity underpin its credit quality. Sound operating and financial performance reflect strong fiscal and strategic oversight and diverse revenue streams. Increasing support from the Aaa-rated State of Georgia also aids credit quality. Georgia Tech benefits from substantial total wealth with fiscal 2018 total cash and investment of $2.2 billion. The rating also incorporates the strong oversight and strategic support of the University System of Georgia.

Management reports for the recently concluded fiscal 2019 and 2020 budget show ongoing momentum. Enrollment growth, increases in state operating support and continued gains in sponsored research awards supported estimated operating revenue growth in the 6% range for fiscal 2019. Preliminary indicators for fall 2019 enrollment point to measured gains in undergraduate, graduate and online student counts and are indicative of the Georgia Tech's excellent market strength.

Offsetting credit factors include Georgia Tech's limited unrestricted liquidity due to state restrictions and complex organizational and debt structure, with several affiliated organizations playing key strategic roles. An increasing net pension liability along with other benefit costs add to ongoing expense pressure. The rating also incorporates renewal and abatement risks related to the terms of the USG rental agreements.

The revision of the outlook to stable from positive for Georgia Tech Facilities, Inc. incorporates the stabilization of the Georgia Tech's outlook on March 14, 2019. That outlook stabilization reflects limited gains in unrestricted liquidity compared to revenue and expense growth.

RATING OUTLOOK

The stable outlook incorporates expectations of continued student market and sponsored research strength at Georgia Tech, with sound operating performance, general stability of financial reserves and manageable future borrowing plans. The stable outlook also incorporates expectations for the financial steadiness of Georgia Tech Facilities, Inc.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Substantial increase in unrestricted liquidity and spendable cash and investments relative to operating expenses at Georgia Tech

- Ongoing gains in total cash and investments for Georgia Tech and its affiliated organizations

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Deterioration in operating performance or material reduction in liquidity

- Marked reduction in state support for Georgia Tech

- Any indication of a lack of willingness of management to renew leases

LEGAL SECURITY

The Georgia Tech Facilities, Inc. (GTFI) bonds are secured by a general obligation of GTFI, with payments to be made from annually renewable lease agreements with the Board of Regents, the legal parent entity of all public universities in Georgia. GTFI has assigned its interest in the rental agreement to the trustee. The Board of Regents' obligation to make rental payments is an unsecured general obligation of the board, payable from all unrestricted revenue sources. The lease revenue bonds are subject to appropriation and abatement risk. Favorably, the bonds are secured by a leasehold interest in the financed property.

Georgia Tech's Public Private Venture (PPV) capital lease obligations are secured by rental revenue paid by the Board of Regents under the terms of annually renewable rental agreements on behalf of the various colleges and universities.

In addition to assessing the relative essentiality of each financed project to USG, Moody's considers the system's reliance on the Public Private Venture (PPV) program. The system currently has over $3 billion of PPV-related lease revenue bonds. While the system has no legal obligation to renew any rental agreement, it has clear strategic interests in stewarding the PPV program. Our ratings incorporate the assumption that the system will take extraordinary steps to renew rental agreements, including agreements for projects whose fundamental business conditions may be weak and require additional support.

USE OF PROCEEDS

Proceeds from the Series 2019A bonds will be used to refund the Series 2007A and Series 2009B-1 bonds for debt service savings as well as to pay costs of issuance. Proceeds from the Series 2019B bonds will be used to refund the Series 2009A bonds for debt service savings as well as to pay costs of issuance.

PROFILE

The University System of Georgia is an organizational unit of the State of Georgia. The USG includes 26 public colleges and universities and is the dominant provider of higher education in the state. In the fall of 2018, the system enrolled over 288,000 full-time equivalent (FTE) students.

The Georgia Institute of Technology, part of the University System of Georgia, is a public technological research university founded in 1885. The main campus is located in Atlanta and it has other instructional sites, including a growing on-line presence. Georgia Tech enrolls over 26,000 FTE students and has sizeable operating revenue of $1.7 billion in fiscal 2018.

Georgia Tech relies on several affiliated organizations to fulfill its mission. The majority of Georgia Tech's PPV rental agreement debt has been issued through Georgia Tech Facilities, Inc. GTFI's main focus has been developing facilities for Georgia Tech's primary Atlanta campus. Since 1985 it has developed over 4 million square feet of space on the campus.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in May 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Dennis Gephardt
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 Fitzgerald
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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