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12 Jan 2015
$3.4B rated debt; ratings affirmed
New York, January 12, 2015 -- Moody's Investors Service assigned a Aaa/VMIG 1 to Yale University's Series
2010A-4 bonds in conjunction with the planned remarketing to a
term mode with a tenure of less than three years. The Series T-2
and X-2 bonds are also scheduled to be remarketed on February 2,
2015. At this time, we have affirmed Yale's existing Aaa,
Aaa/VMIG 1, and P-1 ratings. The outlook is stable.
SUMMARY RATINGS RATIONALE
The rating affirmation reflects reduced short-term liquidity risks
associated with Yale's debt structure as the university converts variable
rate demand obligations to term mode bonds. The staggering of debt
maturities and cost savings associated a reduction in external bank facilities
are also credit positive.
Yale's Aaa long-term rating incorporates the university's international
reputation as a premier academic and research intensive university,
as demonstrated by its extraordinarily strong student demand and history
of superior fundraising. The rating also reflects Yale's ample
financial reserves that provide excellent coverage of debt and operations.
Credit challenges include multiple years of modest operating deficits
combined with the need for careful liquidity and investment management
given the university's high reliance on endowment earnings for operations,
complex investment strategies, and debt structure.
The stable outlook reflects our expectation that management will successfully
implement a multi-year strategy of cost controls and revenue initiatives
to generate favorable operating performance and maintain or strengthen
liquidity relative to potential uses (debt, operations, and
investments).
The Aaa/VMIG 1 rating on the university's variable rate demand bonds and
the P-1 rating on the commercial paper program reflect the strength
of the university's self-liquidity program, with available
daily assets and diverse bank liquidity facilities providing adequate
coverage of worst case potential liabilities.
STRENGTHS
*A globally recognized leader in education and research as highlighted
by extraordinary student demand and a sizeable research enterprise.
*Robust financial reserves provide extraordinary financial flexibility,
with expendable financial resources able to repay debt and enable the
university to operate for more than five and one-half years without
additional revenue.
*Superior fundraising supports capital and programmatic investment,
including completely funding the construction of two new residential colleges.
*Diverse operating lines of business insulate the university from
volatility in any single revenue stream.
*Planned debt restructuring reduces short-term liquidity risks
associated with Yale's variable rate demand obligations.
CHALLENGES
*Liquidity management remains a critical credit factor given the complexity
of Yale's investment strategy, debt structure, derivatives
portfolio, and reliance on endowment spending for operations.
*Slower than peers to implement cost efficiencies in the wake of the
financial crisis, Yale produced multiple years of modest operating
deficits. Under new leadership, the university began a five-year
plan to improve operating performance while continuing to make strategic
investments.
Outlook
The stable outlook reflects expectations that Yale will continue to strengthen
operating performance and maintain or grow liquidity.
WHAT COULD MAKE THE RATING GO UP
Not applicable
WHAT COULD MAKE THE RATING GO DOWN
Stagnating or deteriorating liquidity, an outsized reduction in
financial reserves relative to debt and operations, or deterioration
of operating performance could pressure the rating or outlook.
METHODOLOGIES
The principal methodology used in this rating was U.S. Not-for-Profit
Private and Public Higher Education published in August 2011. An
additional methodology used in the short term rating 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.
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For ratings issued on a program, series or category/class of debt,
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Karen Kedem
VP - Sr Credit Officer/Manager
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
Susan I Fitzgerald
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Aaa/VMIG 1 Yale University's (CT) Series 2010A-4 in conjunction with planned remarketing; outlook stable
No Related Data.
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