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Rating Action:

Moody's assigns Baa2 to Pacific University, OR's $39.8M Series 2014A and 2014B; outlook stable

Global Credit Research - 17 Jan 2014

$39.8 M pro-forma rated debt

New York, January 17, 2014 --

Moody's Rating

Issue: Campus Improvement Refunding Revenue Bonds (Pacific University Project), Series 2014A (Tax-Exempt); Rating: Baa2; Sale Amount: $37,295,000; Expected Sale Date: 2/6/2014; Rating Description: Revenue: 501c3 Secured General Obligation

Issue: Campus Improvement Revenue Bonds (Pacific University Project), Series 2014B (Federally Taxable); Rating: Baa2; Sale Amount: $2,540,000; Expected Sale Date: 2/6/2014; Rating Description: Revenue: 501c3 Secured General Obligation

Opinion

Moody's Investors Service has assigned a Baa2 initial rating to $39.8 million of Campus Improvement Revenue Bonds (Pacific University Project), Series 2014A (Tax-Exempt) and Series 2014B (Federally Taxable). The bonds were initially rated Baa2 in July 2013 originally named Campus Improvement and Refunding Revenue Bonds (Pacific University Project) Series 2013B by Moody's. The sale was postponed and the original rating was withdrawn. The bond offering is expected to occur on February 6, 2014 and will be renamed Campus Improvement Refunding Revenue Bonds (Pacific University Project) Series 2014A (Tax-Exempt) and 2014B (Federally Taxable) reflecting the expected issuance of both tax-exempt and taxable debt. The outlook is stable. The Baa2 rating and stable outlook are supported by the university's consistent and positive operating performance and growing enrollment, counterbalanced by high operating leverage, a very competitive student market, and heavy reliance on student charges.

SUMMARY RATING RATIONALE:

The Baa2 rating reflects Pacific University's healthy operating cash flow and diversification of student charges including a mix of undergraduate and graduate programs with expected growth in graduate student enrollment. The rating also incorporates low financial resources relative to both debt and operations, and softening in yield of undergraduate students, comprising approximately half of the university's student population.

The stable outlook reflects our expectation that the university will maintain positive operating performance through sound fiscal management and grow financial resources through operating surpluses and fundraising. It also incorporates minimal issuance of additional debt in the medium term.

STRENGTHS

*The university has a stable and experienced management team supporting strategic initiatives for enrollment growth, primarily through growth in graduate students at Pacific's health professions campus located in Hillsboro, Oregon.

*Consistently favorable operating cash flow margins with 13% in FY 2013 (as calculated by Moody's) provide satisfactory debt service coverage of 1.93 times in FY 2013 and 1.90 times coverage of maximum annual debt service.

*Pacific University's unique mix of program offerings provides favorable diversity of student charges, although the university remains heavily reliant on tuition and auxiliary revenue. Approximately 50% of students are graduate students, and growing demand for the university's healthcare programs (60% yield in admitted students in some programs) has contributed to high net tuition per student and helped offset a weak undergraduate student market.

CHALLENGES

*Pacific University has limited financial flexibility from financial resources with FY 2013 expendable financial resources of $34.9 million providing a thin cushion to pro-forma direct debt of 0.27 times.

*As a small, residential liberal arts university operating in a highly competitive region, the university's undergraduate student market is challenged, evidenced by weak freshmen selectivity (86%) and softening in yield of accepted undergraduate students to 18% in fall 2013.

*Pacific is vulnerable to enrollment volatility because of small operating base and heavy reliance on revenue from student charges (88% of Moody's FY 2013 adjusted operating revenue).

Outlook

The stable outlook reflects an expectation of continued operating surpluses and targeted enrollment growth particularly in the graduate health programs. The outlook also incorporates the expectation that Pacific University will issue minimal additional debt in the medium term.

WHAT COULD MAKE THE RATING GO UP

Over time an upgrade could be driven by significant increases in liquid financial resources, improved fundraising, and strengthened market position reflected in stronger demand for both undergraduate and graduate students.

WHAT COULD MAKE THE RATING GO DOWN

The rating could be downgraded if the university experiences sustained deterioration of operating cash flow or a decline in financial resources to support the high amount of debt outstanding. Enrollment pressure at the graduate level and weakening in net tuition revenue would also pressure the rating.

RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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

Kimberly S Tuby
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 Baa2 to Pacific University, OR's $39.8M Series 2014A and 2014B; outlook stable
No Related Data.

 

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