$2B pro-forma rated debt, with CP at authorized amount
New York, July 01, 2014 --
Moody's Rating
Issue: Commercial Paper Notes, Series E (Taxable) Commercial
Paper notes, Series J-1 (Tax-Exempt) Extendable Commercial
Paper Notes, Series J-2 (Tax-Exempt); Rating:
P-1; Sale Amount: $180,000,000;
Expected Sale Date: 07-15-2014; Rating Description:
Revenue: Public University Broad Pledge
Opinion
Moody's Investors Service assigned a P-1 rating to The University
of Michigan's $180 million of Commercial Paper Notes,
Series E (Taxable), Series J-1 (Tax-Exempt),
and Extendable Commercial Paper Notes Series J-2 (Tax-Exempt).
The outlook is stable.
SUMMARY RATING RATIONALE
The University of Michigan's Aaa rating and stable outlook reflect its
role as one the nation's largest research enterprises, international
brand recognition, and excellent reputation as an academic medical
center. The rating also incorporates the university's superior
financial flexibility derived from its robust financial reserves,
management's strong fiscal stewardship, and healthy philanthropic
support. The university's key credit challenges include deterioration
of operating performance at the hospital, which accounts for nearly
half of operating revenue, and extensive capital plans.
The highest short-term ratings of P-1 and VMIG 1 are based
on the University of Michigan's strong internal liquidity and treasury
management, dedicated bank lines and liquidity facilities,
as well as market access.
STRENGTHS
*Prestigious, large, comprehensive university attracting
a geographically diverse student body, commanding high net tuition
per student, and enrolling more than 55,000 full-time
equivalent students across a broad array of programs on three campuses.
*Superior financial flexibility provided by robust financial reserves
($7.8 billion of total financial resources in FY 2013),
solid liquidity, and low balance sheet and operating leverage.
*Strong centralized administration with a demonstrated history of
sound fiscal stewardship helps mitigate the risks of a complex business
model and large endowment.
*One of the nation's leading research organizations, with $750
million in research expenses in FY 2013, strengthened by the relative
diversity of program areas funded.
*Excellent reputation as a quaternary academic medical center,
with a broad geographic draw for patients that extends across the state
with increased capacity from significant recent capital investments.
*Strong philanthropic support expected to contribute to endowment
growth and strategic investments as the university in the midst of a $4
billion campaign.
CHALLENGES
*Recent weak operating performance at the hospital pressures overall
university margins, with healthcare representing 45% of operating
revenue. Sustained deterioration of healthcare operations resulting
in material liquidity or financial reserve erosion could pressure the
rating.
*Complexity of running a large organization with multiple business
lines and overseeing more than $11 billion in investment assets
requires careful management.
*Extensive capital plans total $5.9 billion during fiscal
years 2014-2023. The university retains considerable flexibility
to adjust the timing of projects and its use of philanthropic support
to finance projects.
Outlook
The stable outlook reflects our expectation that the university will continue
to garner healthy net tuition revenue and gifts, borrowing plans
remain manageable, and management's focus on cost containment will
produce favorable operating performance despite weaker performance of
the hospital.
WHAT COULD MAKE THE RATING GO UP
Not applicable
WHAT COULD MAKE THE RATING GO DOWN
The rating could be pressured if poor operating performance at the hospital
eroded the university's liquidity or financial reserves or if borrowing
far exceeded expectations without commensurate growth of revenue or reserves.
RATING 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 commercial paper 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.
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.
Karen L Kedem
Vice President - Senior 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
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 P-1 to The University of Michigan's $180M of Commercial Paper Notes, Series E, J-1, J-2; outlook stable