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Rating Action:

Moody's assigns Aaa to Northwestern University, IL's $585M Taxable Revenue Bonds, Series 2013; outlook stable

16 Oct 2013

$1.1B rated debt including full $300M commercial paper issuance

New York, October 16, 2013 --

Moody's Ratings

Issue: Taxable Fixed Rate Bonds, Series 2013; Rating: Aaa; Sale Amount: $585,000,000; Expected Sale Date: 10-22-2013; Rating Description: Revenue: 501c3 Unsecured General Obligation

Opinion

Moody's Investors Service has assigned a Aaa rating to Northwestern University's $585 million of Taxable Revenue Bonds, 2013. We have affirmed existing ratings for all rated debt. The rating outlook is stable. The Aaa rating reflects the university's strong governance, market position, financial condition, and operations, offset by rising balance sheet leverage, substantial future capital plans and a debt structure with large future debt bullet maturities.

SUMMARY RATINGS RATIONALE: Northwestern University's (Northwestern's) Aaa rating reflects its favorable governance and management, national student market position and research presence, strong gift revenue, ample financial resource cushion for debt and operations, and consistently favorable operating performance and cash flow. Offsetting challenges are rising balance sheet leverage and substantial capital plans with uncertain funding sources, strong competition for high quality students and research funding, a debt structure with bullet maturities and substantial unfunded investment commitments. The VMIG 1 and P-1 ratings reflect Northwestern's sufficient self-liquidity to support the tender features of its variable rate debt and repayment of maturing commercial paper.

STRENGTHS

*Northwestern University enjoys a strong national academic reputation and nationally ranked programs, continuously strengthening demand and high net tuition per student of $32,853 for FY 2012 driven in part by the high graduate and professional enrollment.

*Management and governance utilizes best practices, including strong financial, liquidity and debt oversight, integrated short- and long-term planning and a track record of successful achievement of strategic goals.

*Expendable financial resources, including $564 million of unrestricted proceeds from the August 2013 sale of remaining Lyrica royalties and the proceeds from the Clinical Affiliation Agreement, cushion proforma debt (including full $300 million commercial paper issuance) by a favorable 4.6 times.

*Operations are consistently solid with a 14.5% operating cash flow margin for FY 2012 and expectations of generally similar results for FY 2013 ending August 31, 2013.

*Northwestern University operates a large research enterprise, with research awards of $508 million and research expenses of $426 million in FY 2012.

*Northwestern has no direct exposure to health care operations as it owns neither a hospital nor a faculty practice plan following transfer of the assets of the plan to Northwest Memorial Hospital in 2013.

*The university continues to demonstrate meaningful fundraising, with reported gift revenue of $260 million in FY 2012 and strong results expected for FY 2013.

*The VMIG 1 and P-1 ratings are supported by the university's ample same-day liquidity.

CHALLENGES

*The $400 million new money portion of the Series 2013 bond issue represents a substantial increase in balance sheet leverage, with significant remaining capital plans which will likely lead to additional debt issuance in two to three years.

*The university faces fierce competition from other highly ranked private and public universities for the most talented students.

*Northwestern reports substantial $1.15 billion unfunded investment commitments within the endowment at FYE 2012 mitigated, in part, by $2.46 billion of unrestricted monthly liquidity and active cash flow management to address possible liquidity calls.

*The debt structure includes long-dated bullet maturities and a reset in March 2014 for 38% of its variable rate debt, necessitating careful internal management of debt.

*The university competes with other research universities and independent research institutes for research funding that comes primarily from the federal government at a time when total research funding has been cut and further cuts may result from the federal government budget negotiations.

OUTLOOK

The stable rating outlook is based on expectations that Northwestern University will continue to demonstrate good governance, excellent student demand across its diversified programs, providing for continued growth in net tuition revenue. It is also based on the university's favorable operating cash flow, strong financial resources cushioning debt, and the expectation of increased gift revenues.

WHAT COULD MAKE THE RATING GO UP

Not applicable

WHAT COULD MAKE THE RATING GO DOWN

A downgrade of the Aaa rating could be driven by additional borrowing substantially increasing balance sheet and operating leverage or a prolonged period of investment declines resulting in a weakened balance sheet profile. A downgrade could also result from failure to grow research activity in the face of plans for a new research facility or a greater alignment with Northwestern Memorial Healthcare that exposes the university to health facility operating risks. Other factors could be a sustained decline in philanthropic giving or deterioration in student demand demonstrated by declining enrollment, weakening of demand measures or stagnant to declining net tuition per student.

METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. The additional methodology used for the commercial paper and Adjustable Rate Revenue Bonds 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.

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.

Diane F. Viacava
VP - Senior Credit Officer
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 Aaa to Northwestern University, IL's $585M Taxable Revenue Bonds, Series 2013; outlook stable
No Related Data.
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