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Global Credit Research - 06 May 2016
New York, May 06, 2016 -- Summary Rating Rationale
Moody's Investors Service has affirmed Georgia Institute of Technology's (Georgia Tech or GT) Aa3 ratings on the various series of lease-rental bonds, with total rated campus-wide debt of approximately $263 million. The outlook has been revised to positive from stable evidencing the university's momentum in growing balance sheet reserves and revenue, helping moderate a relatively high debt burden.
The Aa3 rating reflects Georgia Tech's excellent brand and reputation as a globally prominent technological research university, demonstrated by impressive student demand and significant research activity. Sound operating and financial performance reflect strong fiscal and strategic oversight and diverse revenue streams. The rating also incorporates the strong oversight and strategic support of the Board of Regents of the University System of Georgia. Offsetting credit factors include limited unrestricted liquidity, complex organizational debt structure and rental agreement-based legal security subject to renewal and abatement risk.
The positive outlook reflects expectations that the institute will maintain its sound financial position and excellent strategic positioning demonstrated by strong cash flow performance, and revenue growth while executing on its strategic plan with minimal incremental increases in debt.
Factors that Could Lead to an Upgrade
Sustained strength in cash flow from operations
No material diminution of liquidity profile or cushion of spendable cash and investments relative to debt and expenses
Factors that Could Lead to a Downgrade
Deterioration in operating performance or a material reduction in liquidity
Increase in debt absent compensating growth of financial reserves and revenue
Sustained decline in sponsored research support
Any indication of a lack of willingness by the Board of Regents to renew leases
GT's Public Private Venture (PPV) capital lease obligations are secured by rental revenue paid by the Board of Regents under the terms of annually renewable rental agreements on behalf of the various colleges and universities. The Board of Regents' obligation to make rental payments is an unsecured general obligation of the board, payable from all unrestricted revenue sources. The lease revenue bonds are subject to appropriation and abatement risk.
In addition to assessing the relative essentiality of each financed project to the system, Moody's considers the system's reliance on the PPV program. It currently has over $3 billion of PPV-related lease revenue bonds that predominantly support student life facilities. While the system has no legal obligation to renew any rental agreement, it has clear strategic interests in stewarding the PPV program. Our ratings incorporate the assumption that the system will take extraordinary steps to renew rental agreements, including agreements for projects whose fundamental business conditions may be weak and require additional support.
Use of Proceeds
The Georgia Institute of Technology, part of the University System of Georgia, is a public technological research university founded in 1885. The main campus is located in Atlanta and it has other instructional sites, including a growing on-line presence. The university enrolls over 22,000 FTE students and has sizeable operating revenue of $1.48 billion at FYE 2015.
The principal methodology used in this rating was Global Higher Education published in November 2015. The additional methodology used was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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Moody's revises Georgia Institute of Technology's outlook to positive; affirms existing Aa3 ratings
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