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
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).
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
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.