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Rating Action:

Moody's upgrades University of Pennsylvania bonds to Aa1 and assigns Aa1 to Series 2016; outlook stable

Global Credit Research - 21 Mar 2016

New York, March 21, 2016 -- Issue: Revenue Refunding Bonds, Series 2016; Rating: Aa1; Rating Type: Underlying LT; Sale Amount: $100,000,000; Expected Sale Date: 04/14/2016; Rating Description: Revenue: 501c3 Unsecured General Obligation;

Summary Rating Rationale

Moody's Investors Service has upgraded the University of Pennsylvania's revenue bonds to Aa1 from Aa2 and has assigned a Aa1 rating to the proposed approximately $100 million of Series 2016 refunding bonds. The upgrade impacts approximately $1 billion of debt. The VMIG 1 portion of the rating on Series of 2004 bonds has been affirmed. The outlook has been revised to stable from positive.

The upgrade acknowledges the University of Pennsylvania's growing wealth relative to peers, expectations of ongoing successful integration of Lancaster General Hospital operations and limited future borrowing plans.

The Aa1 rating reflects Penn's premier market position as a comprehensive university with strong student demand and very large research enterprise. It also incorporates strong fiscal discipline supporting healthy operating performance, remarkable donor support, and considerable scale as FY 2016 operating revenues will surpass $8 billion. These strengths are tempered by large and growing exposure to patient care enterprise approaching 60% of operating revenue, limited spendable cash relative to expenses, and ongoing capital needs.

The VMIG 1 portion of the Aa1/VMIG 1 rating on the Series of 2004 revenue bonds reflects the strong internal liquidity of the university relative to potential put risk combined with strong treasury management.

Rating Outlook

The stable outlook incorporates expectations that financial leverage will remain manageable, operating cash flow performance including the Health System performance will remain strong and that financial reserves will continue to grow, albeit at a more modest pace.

Factors that Could Lead to an Upgrade

Sustained and material growth in flexible reserves relative to expenses and debt

Meaningful increase in revenue diversity

Factors that Could Lead to a Downgrade

Weakening of Health System's credit strength including operating performance

Material decline in university-wide operating performance or liquidity

Significant increase in financial leverage

Legal Security

The repayment obligation of the university's revenue bonds is an unsecured general obligation. The University of Pennsylvania Health System (UPHS) debt is separately secured solely by Health System Revenues.

Use of Proceeds

Proceeds are expected to be used to refund all or a portion of the university's prior Series B of 2009, Series of 2010 and Series A of 2011 as well as to pay costs of issuance.

Obligor Profile

The University of Pennsylvania, located in Philadelphia, is a leading comprehensive research university comprised of 12 schools and a large health care system. Penn is the third oldest member of the prestigious Ivy League. The highly selective university enrolls over 22,000 full-time equivalent students in diverse programs. Approximately one-half are enrolled in graduate and professional programs.

The University of Pennsylvania Health System consists of six hospitals located in Philadelphia and surrounding suburbs as well as central Pennsylvania, a faculty plan, community based physicians and hospice care facility. The hospitals include The Hospital of the University of Pennsylvania (HUP; 820 licensed beds), Presbyterian Medical Center (364 beds), Pennsylvania Hospital (546 beds), The Chester County Hospital and Health System (289 beds), Lancaster General Hospital (533 beds), and Lancaster's Women's and Babies Hospital (145 beds). Physician affiliated entities include The Clinical Practices of the University of Pennsylvania (CPUP) and Clinical Care Associates. HUP and CPUP are operating divisions of the University of Pennsylvania.

Methodology

The principal methodology used in this rating was Global Higher Education published in November 2015. The additional methodology used in this rating was Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012. Please see the Ratings Methodologies 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 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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dennis Gephardt
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Edith Behr
Additional Contact
Higher Education
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 upgrades University of Pennsylvania bonds to Aa1 and assigns Aa1 to Series 2016; outlook stable
No Related Data.
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