Fitch Affirms Stanford University CP Rating 'F1+

Business Wire, Feb 29, 2008

NEW YORK -- Fitch has affirmed the short-term rating on Stanford University's (the university's) commercial paper (CP) program at 'F1 '. On Feb. 13, 2008, the university's board of trustees approved a $300 million increase in total CP program authorization from $350 million to $650 million. The additional CP capacity will be used by the university to redeem approximately $188 million of outstanding series T-2 revenue bonds (auction rate securities), with the remaining capacity available to finance capital plan projects on an interim basis or facilitate additional refunding opportunities. Tranche one of the series T-2 will be called on March 3 and tranche two will be called on March 6.

In addition, Fitch has affirmed the long and short-term ratings on Stanford debt portfolio as follows:

--$850.6 million of fixed rate bonds and notes at 'AAA';

--$502.4 million of variable rate bonds and notes at 'AAA'/'F1 '.

The short term 'F1 ' rating is primarily supported by the university's significant level of highly liquid, highly rated securities which would be available for payment of tendered variable rate demand bonds (VRDBs) and/or maturing CP. Institutionalized procedures providing for a timely flow of funds in the unlikely event of a failed remarketing of VRDBs or roll over of CP also support the short-term rating. To supplement its own internal liquidity, the university obtained a $185 million standby liquidity support agreement (standby liquidity facility) with JP Morgan Chase Bank, NA and Wells Fargo, NA in Oct. 2007. Terms of this standby liquidity facility were reviewed by Fitch and are consistent with industry standards.

As of Jan. 31, 2008, the university identified a pool of approximately $1.6 billion of cash and investments to support its variable rate debt programs requiring liquidity. Discounting certain short and long-term investments within this pool in accordance with Fitch's guidelines for rating internal liquidity transactions would result in a Fitch adjusted value of $1.4 billion. Following redemption of the series T-2 revenue bonds with CP, available liquidity (per Fitch) would provide nearly 3.0 times (x) coverage of variable rate obligations requiring liquidity (VRDBs and CP) and 7.7x the maximum amount of VRDBs and CP due on a given day. In meeting these coverage thresholds, the university does not have to use its standby liquidity facility.

The university continues to weigh additional debt restructuring options in light of current market conditions. As such, the conversion of $130 million of outstanding auction rate series S revenue bonds (auction rate securities) to a weekly variable rate demand mode is being considered. This conversion, which is permissible under the documents, would have only a minimal impact on the coverage of variable rate programs requiring liquidity if executed. University debt management practices are among the best in the higher education industry making it unlikely CP would ever be fully drawn and/or the standby liquidity facility needed.

The long-term 'AAA' rating reflects the university's superior credit standing results from its vast balance sheet resources, outstanding student demand, premier research programs, and experienced management team. While credit risks remain minimal, the university's planned significant ($2.4 billion) investment in academic, housing, and research facilities over the fiscal 2007-2009 period will yield a dramatic increase in financial leverage. Up to $900 million of long-term debt may be issued in support of the capital program, and medium-term borrowing is also contemplated to bridge timing differences between planned expenditures and the expected receipt of gifts. Management's comprehensive approach to planning for this program, including tying the commencement of certain projects to the achievement of fundraising goals and the university's substantial levels of available liquidity, bolstered by a strong track record of investment performance and fundraising, substantially mitigate the risks of overleveraging at the current rating level.

Available funds of the university, which include cash and investments which are not restricted, equaled a very strong $17.3 billion at Aug. 31, 2007, representing, 5.9 years of operating expenses and 721% of pro forma university debt, including the $900 million of maximum permanent financing planned to fund the capital program. The university's endowment increased at a compounded average annual growth rate of approximately 18% since fiscal 2002, equaling a substantial $17.2 billion at Aug. 31, 2007. To help support the planned facilities investment and a recently announced significant increase in financial aid to students, Stanford's board of trustees approved an increase in the endowment payout rate to 5.5% from 5% for at least a three year period. In fiscal 2008, the increased payout is expected to yield an estimated $160 million. In Fitch's view, the increase in the payout is appropriate given the magnitude of both the capital program and planned investment in financial aid and is supported by asset allocation designed to maximize returns and provide stable funding support for operations. While financial market conditions have been challenging over the past several months, the university's investment portfolio, which is professionally managed by the Stanford Management Company, continues to outperform its stated benchmarks and industry peers. At this time, major changes in asset allocation or strategy are not contemplated, though SMC actively monitors financial markets for investment opportunities.