TEXT-Fitch affirms University of Massachusetts 'F1+' rating

Fri Sep 28, 2012 4:39pm EDT

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Sept 28 - Fitch Ratings has affirmed its 'F1+' rating on the Massachusetts
Health and Education Finance Authority $20 million of outstanding series A
variable rate demand bonds issued on behalf of the University of Massachusetts
(UMass, or the university).

SECURITY

UMass revenue bonds are essentially secured by gross unrestricted revenue of the
university and other legally available funds.

KEY RATING DRIVERS

STEADY FINANCIAL PERFORMANCE: The university consistently generates a positive
operating margin. Given UMass' growth in student-generated revenues and its
proactive expense management efforts, Fitch anticipates similar performance in
fiscal 2012 despite weakened operating support from the Commonwealth of
Massachusetts (Commonwealth). Fitch rates UMass' general revenue pledge bonds
'AA'.

RESOURCE SUFFICIENCY: The 'F1+' rating is based on UMass' ability to cover the
maximum potential liquidity demands presented by its variable rate debt programs
by at least 1.25 times (x) from internal resources. Such resources include cash;
and highly liquid, highly rated investments.

CREDIT PROFILE
The 'F1+' rating is based on the availability of highly liquid, highly rated
securities to cover potential maximum liquidity demands presented by UMass'
outstanding variable rate debt portfolio. Of the university's substantial cash
and investments, approximately $191.9 million, including U.S. government and
agencies securities were available on a same-day basis on Aug. 31, 2012.

After Fitch discounts based on maturity, UMass' liquid assets totaled $188.3
million and covered its liquidity demands presented by its variable rate debt
portfolio by a robust 9.41x as of Aug. 31, 2012. Including UMass' $101.7 million
of bonds issued in variable rate Window Bond mode, whose liquidity is guaranteed
by the commonwealth, coverage declines but is still adequate at 1.55x. For an
'F1+' rating, Fitch typically expects coverage of at least 1.25x.

The university's fiscal 2011 actual results reflect a narrowing operating margin
of 1.8%, compared to 3.8% in fiscal year 2010. These narrowing margins were
anticipated in preliminary fiscal 2011 results and thus have already been
factored into UMass' long-term rating. Due to further reductions in commonwealth
appropriations in fiscal 2012, which are tied mainly to the expiration of
federal stimulus funding, Fitch is expecting similar results in fiscal 2012.

The university has managed state aid cuts in fiscal 2011 with both an expected
increase in mandatory fees and some growth in enrollment, without significant
reductions in core academic and student services. Total full-time equivalents
(FTEs) enrollment in fall 2011 grew 1.6% from the prior year, which was slightly
below Fitch's preliminary enrollment data. Between fall 2007 and fall 2011, FTE
growth at UMass' five campuses was still healthy at a 3.9% compound average
annual rate.

There was some expected turnover and subsequent changes in governance at the
university in July 2012. Given the experience and qualifications of the newly
appointed leadership, Fitch does not view these changes as material to the
rating.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity' (June
15, 2012);
--'Fitch Rates University of Massachusetts (University of Massachusetts
Development Finance Authority) 'AA'; Outlook Stable' (Oct. 21, 2011).

Applicable Criteria and Related Research:
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
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