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Rating Action:

Moody's assigns Aa3 underlying rating to Colorado Community College System's $22.5 million of Series 2013 Systemwide Revenue Bonds, and affirms outstanding underlying and enhanced ratings; outlook is stable for both underlying and enhanced ratings

Global Credit Research - 04 Jun 2013

System will have approximately $95.6 million of rated debt outstanding, including the current offering

New York, June 04, 2013 --

Moody's Rating

Issue: Systemwide Revenue Bonds (Front Range Community College - Larimer & Westminster Campus Projects), Series 2013; Rating: Aa3; Sale Amount: $22,500,000; Expected Sale Date: 06-26-2013; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service has assigned a Aa3 underlying rating to Colorado Community College System's ("CCCS") Series 2013 Systemwide Revenue Bonds to be issued by the State Board for Community Colleges and Occupational Education. At this time Moody's has also affirmed the underlying and enhanced ratings on the system's outstanding. The underlying rating outlook is stable.

The enhanced rating applies to the Series 2010A, B-1 and B-2 bonds. The rating outlook for the enhanced rating is stable based on the State of Colorado's (rated Aa1 Stable) current outlook.

The Series 2003 and 2004 Systemwide Revenue Bonds, Series 2004 Lease Revenue Bonds and Series 2010C and D, and Series 2012A Systemwide Revenue Bonds are not supported by the state intercept program.

SUMMARY RATING RATIONALE

The Aa3 underlying rating reflects the system's large operating base and enrollment, positive operating performance, and ample expendable financial resources to cushion both debt and operations. The Aa3 rating also reflects security pledges from specific revenue streams, including 10% of tuition revenues, which provide adequate debt service coverage.

The Aa2 enhanced rating is based on support from the Colorado Higher Education Enhancement Program (CHEEP). The enhanced rating and stable outlook are based primarily on the structure and mechanics of the CHEEP which is rated Aa2 stable. The rating of Aa2 is based on Moody's assessment of program level criteria related to program mechanics and state commitment, as set forth in the February 2008 "Rating Methodology for State Aid Intercept Programs and Financings." For more information on the CHEEP, please refer to Moody's initial report assigning a programmatic rating to the intercept program dated October 22, 2008.

STRENGTHS

*Strong growth in expendable financial resources (91%) to $324 million in fiscal year (FY) 2012 from $169 million in FY 2008, providing a healthy 3.04 times cushion to $106.6 million of pro-forma direct debt.

*Established market position as the largest system for higher education in the state, with full-time equivalent (FTE) enrollment of 25,925 students in fall 2012, although this is down 5% from a high of 27,457 FTEs in fall 2010.

*Positive operating performance with average three-year annual operating margin (FY 2010 through 2012) of 8.3%, although 6.0% operating margin in FY 2012 is lower due to significant reductions in state appropriations to the system during the fiscal year.

*Conservative, fixed rate, amortizing debt with final maturity in 2042.

CHALLENGES

*Sharp decline in state funding of $19.1 million in FY 2012 (including fee-for-serve appropriations, state fiscal stabilization funding and state appropriations), however the system reports increased state appropriations in FY 2013.

*Higher than typical federal student loan cohort default rate, with three campuses having high 3-year cohort default rates (FY 2009 three-year cohort) that exceed 30% in some years, exposing the system to increased regulatory risk.

*Decentralized processes and systems over the component colleges has resulted in weaker internal controls at some campuses.

*Highly reliant on Pell Grants, accounting for a substantial 41% of FY 2012 net tuition revenue of $356.9 million (as calculated by Moody's), which increases the system's vulnerability to changes or cutbacks in federal funding in future federal budget cycles.

*Capacity utilization within colleges in the system is unevenly allocated, with under capacity at some urban campuses and over capacity at certain rural colleges leading to less efficient utilization of space.

Outlook

The stable outlook reflects our expectation that the system will maintain low leverage relative to its healthy balance sheet, continued positive operating performance and solid market position. It also reflects our expectation that the system is likely to experience enrollment declines but will continue to grow net tuition revenue, albeit at a slower pace given price sensitivity of students and perceived difficulty of continuing to increase tuition at high levels.

WHAT COULD MAKE THE RATING GO UP

Underlying Rating: Sustained improved operating performance; increase in financial resources; more robust oversight over campuses to mitigate adverse auditor findings and duplicative processes leading to greater control over expenses

Enhanced Rating: The stable outlook is based upon the state's outlook and could change in conjunction with the state's outlook or the Colorado Higher Education Enhanced Program rating

WHAT COULD MAKE THE RATING GO DOWN

Underlying Rating: Weakening of student market position demonstrated by prolonged enrollment declines leading to weaker operating performance; sustained cuts in state appropriations with the inability to offset with other revenue sources; loss of eligibility for federal aid for any of the campuses

Enhanced Rating: Downgrade of the state's rating or the rating of the Colorado Higher Education Enhancement Program

PRINCIPAL RATING METHODOLOGY

The principal methodology used in the underlying rating was Moody's Approach for Evaluating Community Colleges published in December 1999. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings: Pre and Post Default published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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.

Faiza Mawjee
Associate 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

Erin Veronica Ortiz
Analyst
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 underlying rating to Colorado Community College System's $22.5 million of Series 2013 Systemwide Revenue Bonds, and affirms outstanding underlying and enhanced ratings; outlook is stable for both underlying and enhanced ratings
No Related Data.
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