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TEXT - Fitch affirms Board of Regents of the University of Texas
Jan 30 - Fitch Ratings has affirmed the following ratings on the Board of Regents of the University of Texas System's Revenue Financing System (RFS) debt: --$4.4 billion fixed rate RFS bonds at 'AAA'; --$952.9 million variable rate RFS bonds at 'AAA/F1+'; --$1.25 billion authorized tax-exempt and taxable commercial paper (CP) at 'F1+'. SECURITY RFS debt is secured by a lien on and pledge of all legally available revenues and fund balances of the University of Texas System (UTS, or the system). SENSITIVITY/RATING DRIVERS STABLE CREDIT CHARACTERISTICS: The 'AAA' rating continues to be underpinned by the system's substantial resource base, strong operating history, diverse revenue streams, healthy programmatic demand and an experienced management team. MANAGEABLE CAPITAL PLANS: UTS maintains adequate capacity to issue the additional debt associated with its ongoing capital plan (the plan). Though another $1 billion is expected to be issued to support the plan over the next six years, the system's existing debt burden is very low, while operations provide more than ample coverage of annual debt-related costs. SUFFICIENT LIQUID RESOURCES: The 'F1+' rating is based on UTS' ability to cover the maximum potential liquidity demands presented by its tax-exempt, RFS CP program and total outstanding variable rate RFS bonds by at least 1.25x from internal resources. CREDIT PROFILE In fiscal 2012, the system continued to produce strong results in terms of financial performance, balance sheet growth and enrollment that Fitch considers consistent with its 'AAA' rating. Fiscal 2012 operations were characterized by growth in three of the university's four primary revenue streams, which Fitch views favorably, as it led to strong operating performance. Grant and contract revenues declined by 4.9%, though Fitch notes that this is largely attributable to a loss in American Recovery and Reinvestment Act funds that were not intended to serve as an ongoing revenue stream. Healthcare income increased by a solid 8.6%. State appropriation and net tuition revenue growth of 3.3% and 7.9%, respectively, were linked to strengthened enrollment in fall 2011. Headcount enrollment reached 214,861 (+1.7%) in fall 2011, and subsequently increased to 216,889 in fall 2012, which bodes well for these two key revenue streams in fiscal 2013. Revenue growth contributed to the system's ability to generate a solid, 4.6% operating surplus in fiscal 2012. This result compares favorably to the 3.7% average surplus generated over the past five fiscal years (2008 - 2012). The sizeable operating base also helps the system to maintain a relatively low debt burden. In fiscal 2012, maximum annual debt service (MADS) on the combined RFS and permanent university fund bonds outstanding amounted to $568 million (due in 2013), or just 4% of total operating revenues. Net income available from operations provided a sound 4.3x coverage of MADS. Available funds, defined by Fitch as cash and investments not permanently restricted, also posted modest growth in fiscal 2012, to $18.1 billion. This represents the highest level of resources achieved since before the financial crisis. Available funds provided 132% coverage of annual operating expenses ($13.7 billion) and strong 227.7% coverage of total outstanding debt ($7.9 billion) in fiscal 2012. The system's strong balance sheet cushion has historically been a primary driver of the 'AAA' rating, and Fitch views the continued growth in this important resource favorably. The 'F1+' rating is based on the availability of adequate highly liquid, highly rated securities to cover the liquidity demands presented by the system's RFS CP program. The CP program has a maximum authorization of $1.25 billion. In addition, $952.9 million in variable rate demand bonds (VRDBs) benefit from the pledge of the system's internal liquidity. As of Dec. 31, 2012, the system's liquid assets totaled $7.4 billion, providing 3.36x coverage of the maximum authorized CP amount plus outstanding VRDBs. Fitch views this level as healthy, and consistent with the expectation for the highest short-term rating. Per criteria, a minimum of 1.25x coverage is expected to achieve the 'F1+' level. UTS was established pursuant to the Texas Constitution in 1876. It now includes nine academic institutions and six health institutions located throughout the state. The system enjoys strong demand for academic programs, and has grown its total student population by 11.2% over the past five enrollment cycles. UTS is also a beneficiary of a 2/3 share of the Permanent University Fund, which had a market value of nearly $14 billion as of Dec. 31, 2012.
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