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Rating Action:

Moody's assigns Aaa rating to Harvard University's (MA) $402 million Series 2013A Taxable Revenue Bonds and affirms outstanding Aaa, Aaa/VMIG 1 and P-1 ratings; outlook is stable

22 Apr 2013

University has $5.5 billion of pro-forma rated debt outstanding ($8 billion including commercial paper programs at full authorized amounts)

New York, April 22, 2013 --

Moody's Rating

Issue: Series 2013A Taxable Revenue Bonds; Rating: Aaa; Sale Amount: $402,000,000; Expected Sale Date: 5-1-2013; Rating Description:Revenue: 501c3 Unsecured General Obligation

OPINION

Moody's Investors Service has assigned a Aaa rating to Harvard University's $402 million of fixed-rate Series 2013A Taxable Revenue Bonds. We have also affirmed the Aaa rating on its fixed rate bonds, Aaa/VMIG 1 on variable-rate demand bonds supported by self liquidity, and P-1 ratings on taxable and tax-exempt commercial paper programs supported by the university's self liquidity program. The outlook is stable.

SUMMARY RATING RATIONALE

The university's highest long and short-term ratings reflect a superior market position as a globally renowned education and research leader, history of excellent fundraising and strong long-term investment performance, improved liquidity profile, and very large financial resource base providing strong support for debt and operations. Credit challenges include slowed revenue growth, heavy budgetary reliance on annual endowment draws, and a high amount of outstanding debt with the pace of annual capital spending expected to increase. The Aaa/VMIG 1 rating on the university's variable rate demand bonds and the P-1 ratings on the taxable and tax-exempt commercial paper programs reflect the strength of the university's self-liquidity program, with available assets providing strong coverage of potential liabilities.

STRENGTHS

*Largest financial resource base of all universities globally, with $33.6 billion of total financial resources, and large and diversified operating revenue base ($4.5 billion of Moody's-adjusted operating revenue) in FY 2012;

*Extraordinary and long history of philanthropic support, with total gifts averaging over $500 million annually during the past five years;

*Superior market position as a globally renowned education and research leader, with a diverse array of undergraduate, graduate, and professional programs benefiting from excellent student demand;

*Enhanced focus on organizational risk reduction and improved liquidity, including the mitigation of potential calls on liquidity and better communication between the university and Harvard Management Company (HMC, endowment management office); in FY 2012 Harvard had over $8.8 billion of unrestricted cash and investments which could be liquidated within one month and which would provide over 857 days cash on hand and cover outstanding demand debt 12.7 times;

*Strong senior financial management with a focus on multi-year financial planning, growth of alternative revenue streams, expense containment and increased organizational efficiency supporting positive operating performance and healthy debt service coverage (15.4% three-year average operating margin and 4.1 times average debt service coverage during FY 2010-2012, by Moody's calculation);

*Large and diversified research enterprise ($769 million of research expenses in FY 2012); management is focused on contingency planning and stress testing of long-range funding assumptions in light of pressure on federally sponsored research.

CHALLENGES

*Heavy budgetary reliance on the endowment draw to cover expenses (38.7% of Moody's adjusted operating revenue in FY 2012) highlighting the importance of strong long-term investment performance and maintenance of adequate liquidity; in response to past endowment losses, the university undertook significant expense cuts over the past few years;

*Slowed revenue growth, including negative pressure on future growth of student charges and federally sponsored research; by Moody's calculation, operating revenue of $4.5 billion in FY 2012 represents a 1% decline over FY 2009 operating revenue;

*Liquidity management remaining a critical credit factor for this large university, including investment complexity within the endowment, a large portfolio of unfunded private investments, as well as self-liquidity supported variable-rate debt and swaps which require collateral posting;

*Large and complex campus requiring ongoing capital investment, with capital spending expected to increase moderately in the near-term including resumption of Allston campus expansion and renovation of the university's student housing; debt-to revenue is high at 1.3 times in FY 2012 although the university has been focused on deleveraging in recent years to build longer-term debt capacity;

*Potential heightened federal regulatory and tax risk for the wealthiest not-for-profit universities.

OUTLOOK

The stable outlook is based on Moody's expectation of Harvard's continued superior financial cushion, premier market position, and strong operating margins and debt service coverage. We also expect that the university will maintain very strong liquidity levels and that future borrowing will be accompanied by growth of financial resources, including robust fundraising.

WHAT COULD MAKE THE RATING GO UP

Not applicable

WHAT COULD MAKE THE RATING GO DOWN

Failure to sustain a strong liquidity position relative to its potential liquidity needs. Dramatic increase in leverage to fund capital investments without growth of expendable financial resources.

The principal methodology used for the long term rating and short term ratings was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The additional methodology used in rating the short term ratings was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. 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.

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.

Kimberly S. Tuby
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
60 State Street
Suite 700
Boston, MA 02109
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Eva Bogaty
Asst Vice President - 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 Aaa rating to Harvard University's (MA) $402 million Series 2013A Taxable Revenue Bonds and affirms outstanding Aaa, Aaa/VMIG 1 and P-1 ratings; outlook is stable
No Related Data.
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