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Rating Action:

Moody's reviews for downgrade University of Puerto Rico's, PR Ba1 System Revenue & Ba2 Educational Facilities Revenue ratings

19 Dec 2013

$562M debt affected

New York, December 19, 2013 -- Moody's Investors Service has placed on review for downgrade the University of Puerto Rico's ratings -- the Ba1 rating on the University System Revenue Bonds and the Ba2 rating on the 2000 Series A bonds supported by university lease payments. The rating action affects $562 million of rated debt issued through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA by its Spanish acronym).

SUMMARY RATING RATIONALE

The ratings have been placed on review following the December 11, 2013 placement of the Commonwealth of Puerto Rico's general obligation (GO, Baa3) and Government Development Bank (GDB, Baa3) ratings on review for downgrade. The university is heavily dependent on the commonwealth for funding as well as for governance. The university is also reliant on the GDB for liquidity and financial management support.

Liquidity at the university is weak. Additional factors driving this review include the island's economic malaise and challenging demographics that could impact tuition and student charges, elimination of the Stabilization Fee paid by enrolled students, and high reliance on federal Pell Grants which are vulnerable to future budget cuts. Federal research funding and patient care revenue, as well as other reimbursement reductions related to the Affordable Care Act, are also under potential pressure.

Primary credit strengths include the University of Puerto Rico's very strong market position as the only public higher education institution in Puerto Rico and its role as a primary driver of economic activity through its academic, medical and research programs. Also, in November 2013, the National Science Foundation lifted its suspension of research funding at the Central Administration and Mayaguez campuses. All debt is fixed rate and amortizing and there are no immediate debt plans.

During the review period, we will focus on the following:

- Resolution of the Commonwealth of Puerto Rico's ratings review

- University of Puerto Rico's relationship with the commonwealth and expectations for future financial support

- University's governance and management

- University's liquidity position

- Projected pledged revenues and contributing revenue sources

- Operating performance and liquidity position of Servicios Medicos Universitarios (SMU), the university's academic medical center and a key Medicaid provider in the commonwealth

- Future strategic, capital and debt plans.

WHAT COULD MAKE THE RATING GO DOWN

Given the close ties between the university and the commonwealth and current pressures on the ratings of the Commonwealth of Puerto Rico and the GDB, the review for University of Puerto Rico is likely to result either in a confirmation of current rating levels or a downgrade. A downgrade would be driven by:

- A downgrade of the Commonwealth of Puerto Rico's or the GDB's ratings

- A weakening in the university's own credit profile reflected in lower enrollment or net tuition revenue resulting in stressed Pledged Revenues and thinner debt service coverage, weaker unrestricted liquidity, significant capital plans, or deterioration in SMU's operations or balance sheet resources.

PRINCIPAL 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.

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 reviews for downgrade University of Puerto Rico's, PR Ba1 System Revenue & Ba2 Educational Facilities Revenue ratings
No Related Data.
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