NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed the 'F1+' rating on the Regents of the University of California's (UC, or the university) short-term debt obligations as follows:
--$600 million general revenue bonds (GRBs), 2013 series AL (variable-rate demand bonds);
--$150 million GRBs, 2011 series Z (taxable variable-rate demand bonds);
--$31.3 million medical center pooled revenue bonds (MCPRBs) 2013 series K (weekly rate);
--$2 billion taxable and tax-exempt commercial paper (CP) program.
SECURITY
GRBs and CP are secured primarily by a broad pledge of UC's unencumbered revenues. MCPRBs are a limited obligation of UC, secured by the revenues derived from the operation of its five medical centers.
KEY RATING DRIVERS
FINANCIAL STRENGTH OF UC: The university maintains a strong financial profile, which is supported by exceptional student demand; a diverse revenue base; substantial balance sheet resources; and a manageable debt burden, despite a trend of negative operating margins over the past several years. Fitch maintains a long-term 'AA' rating on UC's GRBs.
SUFFICIENT LIQUID RESOURCES: UC has the ability to cover the maximum potential liquidity demands presented by its variable-rate debt programs by more than 2x from internal resources. Such resources include cash, and highly liquid, highly rated investments.
RATING SENSITIVITIES
FINANCIAL DETERIORATION: Erosion to UC's internal resource base or to UC's broader general revenue credit to the point where the university could no longer sufficiently cover its variable-rate obligations, while unlikely, would put downward pressure on the rating.
CREDIT PROFILE
Chartered in 1868, UC is a comprehensive graduate research university with 10 campuses located in Berkeley, Davis, Irvine, Los Angeles, Merced, Riverside, San Diego, Santa Barbara, Santa Cruz, and a graduate campus in San Francisco for health sciences. It also operates five academic medical centers, four law schools, and a 135,000-acre statewide agricultural and natural resources division.
UC's exceptional reputation is the basis for its strong demand and selective admissions. Fiscal 2014 enrollment totaled approximately 242,000 students and applications to the university continue to grow. Based on preliminary data, more than 193,000 applicants applied to at least one UC campus for the fall 2015 term, up almost 6% from the prior fall term. Freshmen applications totaled just over 158,000, or 6.5% more than for fall 2014.
INTERNAL LIQUIDITY SUPPORTS SHORT-TERM DEBT OBLIGATIONS
Liquidity support for UC's variable-rate debt programs is primarily derived from the strength of its short term investment pool (STIP). As of June 30, 2014, the market value of STIP holdings, primarily U.S. Treasury and agencies securities and highly rated corporate fixed-income instruments, totaled $8.34 billion. Of this amount, approximately $6.67 billion (after discounts based on asset type and maturity per Fitch's short-term rating criteria) provided solid 2.4x coverage of UC's approximately $781.3 million of variable-rate debt (excluding $500 million of outstanding 2011 series Y taxable floating rate notes that have a mandatory tender in July 2017) and maximum CP authorization of $2 billion ($994 million outstanding as of June 30, 2014). For an 'F1+' rating, Fitch typically expects coverage of at least 1.25x. The STIP balance rose to about $8.5 billion as of Sept. 30, 2014.
To manage potential calls on its liquidity, UC limits the amount of CP maturing daily to $200 million. In addition, the university maintains the ability to draw on a $700 million general purpose bank line of credit. UC's liquidation procedures plan adequately addresses the procedures to be followed in advance of maturing CP notes, mandatory tender dates, and for how a potential failed remarketing of variable-rate demand bonds would be addressed.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating U.S. Public Finance Short-Term Debt' (Jan. 7, 2015);
--'Fitch Downgrades University of California General Rev Bonds to 'AA'; Outlook Stable' (Feb. 5, 2014).
Applicable Criteria and Related Research:
Rating U.S. Public Finance Short-Term Debt
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978990
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