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Rating Action:

Moody's revises Montclair State University's (NJ) outlook to negative and assigns A1 to Ser. 2015D bonds

10 Jun 2015

$464M rated debt

New York, June 10, 2015 --

Moody's Rating

Issue: Revenue Refunding Bonds, Series 2015D; Rating: A1; Sale Amount: $72,685,000; Expected Sale Date: 06/16/2015; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service revises Montclair State University's (NJ) outlook to negative and assigns an A1 rating to its planned $72.7 million of proposed Revenue Refunding Bonds, Series 2015D. The bonds, to be issued through the New Jersey Educational Facilities Authority (NJEFA), are expected to be fixed rate, amortizing, with a twenty-year maturity. We also confirm the A1 rating on the university's outstanding NJEFA bonds. This rating action resolves a review for possible downgrade that was initiated on April 23, 2015.

SUMMARY RATING RATIONALE

Confirmation of the A1 rating reflects MSU's role as the second largest public university in New Jersey, with strong demand, leading to continued growth in net tuition revenue. The university has strong financial management leading to sustained robust operating cash flow providing sound debt service coverage. This positions MSU to absorb currently projected as well as stress case state funding cuts. The rating also incorporates very good liquidity, enhancing Montclair's flexibility.

Challenges facing MSU include high leverage relative to resources and revenue, owing largely to modest historic state capital support, as well as a likely multi-year weak state funding environment. The A1 rating further incorporates MSU's agreements with third parties for strategic housing and energy projects.

OUTLOOK

The negative outlook reflects the increased likelihood that operational support from the State of New Jersey (A2 negative) will contract over the mid-term after four years of flat funding, with heightened risk MSU will be required to absorb a greater portion of employee fringe benefits. The university's relatively high financial leverage, coupled with thin performance of its affiliated housing project during its early years of operations, are constraining factors. Weakening of cash flow in light of rising debt service and continued narrow performance for the affiliated housing project would place pressure on the rating.

WHAT COULD MAKE THE RATING GO UP

• Substantial improvement in flexible financial resources

• Moderation of financial leverage

• Maintenance of robust operating performance providing solid debt service coverage

WHAT COULD MAKE THE RATING GO DOWN

• Sustained weakening of operating cash flow and debt service coverage

• Substantial decline in liquidity

• Material additional unanticipated leverage

• Greater than currently anticipated support of the affiliated housing and energy projects

• Further pressure on the State of New Jersey's credit quality

OBLIGOR PROFILE

Montclair State University is the second largest public university in New Jersey, established in 1908 and offering a broad array of academic degrees among its five colleges. In FY 2014, MSU recorded operating revenues of $373 million and served a headcount enrollment of over 20,000 students.

LEGAL SECURITY

Payments under the Loan Agreement are general, unsecured obligations of the university. There are no debt service reserve funds and no pledged mortgages of university assets.

USE OF PROCEEDS

Proceeds of the planned Series 2015D bonds will be used to refinance all or portions of the outstanding Series 2003E and 2006A revenue bonds, and pay costs of issuance.

PRINCIPAL 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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

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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.

Mary Cooney
Asst Vice President - 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

Susan I Fitzgerald
Senior Vice President
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 revises Montclair State University's (NJ) outlook to negative and assigns A1 to Ser. 2015D bonds
No Related Data.
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