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Rating Action:

Moody's assigns Aaa to Texas A&M University System's (TX) Revenue Financing System Bonds, Taxable Series 2019B; outlook stable

15 Jul 2019

New York, July 15, 2019 -- Moody's Investors Service has assigned a Aaa rating to the Texas A&M University System's (TX) proposed approximately $431 million of Revenue Financing System Bonds, Taxable Series 2019B. Concurrently, we affirm the following ratings on the Texas A&M University System's $4.6 billion of outstanding rated debt: Aaa on parity Revenue Financing System (RFS) bonds and on debt secured by Permanent University Fund (PUF) distributions; Aa2 on outstanding Educational Facility Revenue Bonds; and P-1 on the PUF and RFS commercial paper (CP) programs. The outlook is stable.

RATINGS RATIONALE

The Texas A&M University System's (TAMUS) Aaa rating and exceptional credit quality reflect robust and growing financial reserves and very strong capital and operating support from the Aaa-rated State of Texas. Healthy operating cash flow benefits from growing enrollment and the system's large scale, with 11 campuses serving over 153,000 headcount students, as well as effective financial management of this complex system. Tempering factors include rising, though still manageable, leverage relative to revenue and cash flow, with ongoing capital needs across the growing system and added complexity from third party partnerships.

The Aaa rating on Permanent University Fund (PUF) debt reflects strong coverage provided by pledged revenues, constitutional limitations on additional PUF debt issuance and spending, and the fund's diversified asset allocation and strong investment oversight. Annual distributions must be sufficient to pay annual debt service, and bondholders have ultimate access to the approximately $22 billion PUF corpus to pay debt service on combined University of Texas System (Aaa stable) and Texas A&M University System $3.6 billion combined PUF long-term debt and maximum $1.375 billion PUF commercial paper.

The Aa2 two-notch differential on the Educational Facility Revenue Bonds from the system's Aaa rating incorporates the risk associated with the annual appropriation of funding for appropriation payments by the system on behalf of Texas A&M University at College Station (TAMU College Station), the subordination of appropriation payments to revenue bond debt, the more limited revenue sources relative to aggregate system revenues, and the projects aspects as single site facilities located on one campus. TAMU College Station anticipates paying appropriation payments from project revenues and fundraising but may also pay from any of its lawfully available revenues.

The P-1 ratings on the PUF and RFS CP programs are supported by sufficient funds available on a daily and weekly basis in the unlikely event of failed remarketing procedures, which provide for timely liquidation of such funds, as well as a same-day note-purchase agreement with The University of Texas Investment Management Company (UTIMCO).

RATING OUTLOOK

The stable outlook reflects our expectation of continued robust financial resources and strong state support combined with at least balanced operating performance.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Not applicable

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Substantial increase in financial leverage beyond current plans

- Sustained stagnation or decline in revenue

LEGAL SECURITY

Revenue Financing System debt is a general obligation of the Board of Regents of The Texas A&M University System, secured by a lien on and pledge of a broad pledge of system-wide revenues and available fund balances. Pledged revenues exclude state appropriations, the system's interest in the Available University Fund (AUF), which consists of annual distributions from the PUF, and amounts appropriated to system participants from the Higher Education Fund (HEF). For fiscal 2018, pledged revenues totaled $2.5 billion, with an additional over $875 million of pledged fund balances, for a total of over $3.3 billion available to pay debt service on $3.2 billion of RFS debt, including outstanding commercial paper.

The Permanent University Fund (PUF) is a constitutionally established endowment fund for the benefit of both the University of Texas System and the Texas A&M University System. The University of Texas System receives two-thirds of the distributions derived from the fund, which flow into the AUF and are then available to pay debt service. The Texas A&M University System receives one-third of the distributions, which it pledges to its own issuance of PUF debt. After payment of debt service on bonds secured by each System's interest in the AUF, the remaining income is available to fund academic excellence programs at certain institutions at each System.

Security for the System's PUF obligations derives from a lien on the System's interest in the AUF, which consists of distributions from the PUF. The lien securing PUF CP is subordinate to the lien that secures the System's PUF bonds. Nevertheless, the Texas Constitution requires the Board of Regents to distribute from the PUF to the AUF amounts sufficient to pay debt service on all PUF debt, which provides for coverage of the obligations under both liens. There is an additional bonds test limiting TAMUS' debt issuance to no more than 10% of the value of the PUF, excluding the value of PUF Lands. TAMUS currently has approximately $1.2 billion in outstanding PUF bonds and commercial paper.

USE OF PROCEEDS

Funds will be used to refund a portion of outstanding RFS long-term debt and RFS commercial paper, to provide construction funds for certain projects at Texas A&M System campuses and to pay costs of issuance.

PROFILE

The Texas A&M University System is a land, sea and space grant comprehensive higher education system, with 11 individual institutions and seven research and service agencies located throughout the state. The system had operating revenue of over $4.6 billion for fiscal 2018, with approximately 153,000 enrolled students on a headcount basis in fall 2018.

METHODOLOGY

The principal methodology used in the long-term ratings was Higher Education published in May 2019. The principal methodology used in the short-term ratings was Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in March 2018. Please see the Rating Methodologies 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 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.

Susan Shaffer
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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