Fitch Rates Univ. of Massachusetts $116.5MM Sr Series 2008-2 Project Revs 'A+'

Business Wire,  June 18, 2008  

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NEW YORK -- Fitch assigns an 'A+' rating to approximately $116,495,000 of University of Massachusetts Building Authority (UMass) project revenue bonds, senior series 2008-2. The bonds are expected to price via negotiated sale the week of June 23rd. At the same time, Fitch affirms the unenhanced, long-term 'A+' rating on the following:

-- $743,695,000 University of Massachusetts Building Authority project revenue bonds;

-- $88,810,000 Massachusetts Health and Educational Facilities Authority revenue bonds, University of Massachusetts issues;

-- $331,830,000 Massachusetts Health and Educational Facilities Authority Worcester City Campus Corp. issues (University of Massachusetts Project).

Proceeds of the series 2008-2 bonds will finance various capital plan projects. UMASS revenue bonds are essentially secured by and/or payable from gross unrestricted revenues or legally available funds. The Rating Outlook is Stable.

The 'A+' rating is supported by UMass' stable enrollment, diversified revenue base, and relatively consistent operating performance. The primary credit concerns include modest liquidity and a $2.9 billion, five-year capital program (fiscal 2008-2012), a significant portion of which will be funded with additional financial leverage.

To some extent, UMass' financial performance reflects the benefits of increased operating support from the 'AA' rated Commonwealth of Massachusetts (the commonwealth). During fiscal 2007, commonwealth appropriations for operations increased by approximately 10% and comprised approximately 25.2% of operating revenues. Appropriation levels increased in fiscal 2008, albeit at a lower rate, and are expected to increase again in fiscal 2009. Improved funding largely reflects the more prominent role UMass will be expected to play as the commonwealth's flagship public university system and in leading various commonwealth research activities. Over the past several years, research funding from federal and non-federal sources has increased modestly, representing a stable 20% of operating revenues during fiscal 2007. UMass expects research activity, and the proportion to be funded by the state, to potentially increase more significantly going forward.

Reliance on the commonwealth for operating support has continued to decline as other unrestricted revenue sources, namely tuition, fees, and auxiliary receipts (student generated revenues) fund proportionately larger shares of the budget.

For fiscal 2007, student generated revenues, including tuition, mandatory fees, and auxiliary receipts, represented 27.9% of UMass' operating revenues, and are its largest funding source. Enrollment largely drives the level of student generated revenues. With modest growth in headcount over the past several years, UMass has consistently generated positive operating margins. For fiscal 2003-2007, the average operating margin was 3.1%. For public universities, Fitch expects a break-even level of performance.

UMass' liquidity remains relatively weak for a public university system of its size and scope. For fiscal 2007, available funds, or cash and investments which are not restricted, equaled $367.4 million, representing approximately 16.1% of operating expenditures and 24.8% of total pro-forma debt. Pro-forma debt of approximately $1.44 billion includes outstanding revenue bonds, commonwealth guaranteed bonds (rated 'AA' by Fitch), and the to-be-issued series 2008-2 debt. For an 'A' category public university, the median value of available funds to operating expenditures and leverage is 37.1% and 130%, respectively. UMass' pro-forma debt burden, measured as projected maximum annual debt service ($105.1 million, fiscal 2011) as a percentage of fiscal 2007 revenues, is moderate at 4.6%. As additional debt is issued to fund CIP projects, the debt burden is expected to further increase. Mitigating the risk of a rising debt burden is UMass' ability to generate surpluses sufficient to service the increased financial obligations and management's track record of adjusting the CIP program to reflect available resources.

For additional information on the University of Massachusetts, please see Fitch Research dated April 1, 2008, available on the Fitch web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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