Fitch Rates Vanderbilt University's $354MM Revs 'AA'; VRDBs 'AA'/'F1+'

Business Wire, March 17, 2008

NEW YORK -- Fitch Ratings assigns a long-term 'AA' rating to the following series of fixed-rate revenue refunding bonds issued by the Health & Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, Tennessee, on behalf of Vanderbilt University (the university):

-- $178 million series 2008A;

-- $137 million series 2008B;

-- $39 million series 2008C.

In addition, Fitch assigns a short-term 'F1 ' rating to approximately $61.2 million of outstanding series 2005B-1 revenue bonds (long-term rating of 'AA') that are being remarketed from a term interest rate mode to a flexible interest mode on April 1, 2008. Fitch also affirms the university's outstanding long- and short-term ratings of 'AA' and 'F1 ', respectively.

The series 2008 bonds are expected to price on or about March 26 via negotiation. Proceeds of the series 2008A and series 2008B bonds will be used to refund approximately $315 million of the university's outstanding commercial paper. Proceeds of the series 2008C bonds will be used to refinance the university's series 1997A and series 1998A bonds. Revenue bonds constitute a general obligation, payable from all available funds. In the case of bonds issued to finance hospital projects, revenue bonds are payable from hospital revenues and are secured by a debt service guaranty agreement from the university. The Rating Outlook on all bonds is Stable.

The long-term 'AA' rating is supported by the university's substantial liquidity, strong fundraising ability, highly regarded academic reputation and student demand, and positive operating margins. Credit concerns include revenue concentration in the health care sector and exposure, albeit declining, to the state's Medicaid program, TennCare. The university's hospitals and clinics have increased market share over the past few years and continue to generate stable and positive operating margins. The operating margin of the hospitals and clinics was 3.2% in fiscal 2007, up from 2.9% in fiscal 2006.

Student demand for Vanderbilt is reflected by its increasing number of freshman applications, improving selectivity and stable matriculation. Fall 2007 freshman applications increased 5.9% from fall 2006 to 12,911. The fall 2007 acceptance rate was 32.8% and the matriculation rate was 39.5%. Headcount enrollment was 11,847 for fall 2007, a 2% increase from fall 2006. Stable enrollment trends have contributed to the university's positive operating performance. The university's operating margin was 3.0% in fiscal 2007, and has averaged 2.1% over the past five years.

The university has also maintained substantial balance sheet resources. Fiscal 2007 available funds, defined by Fitch as unrestricted and temporarily restricted cash and investments, were $3.7 billion, covering total debt of $1.1 billion by 3.3x and total operating expenses of $2.7 billion by 1.4x. In addition, Vanderbilt's current capital campaign has raised $1.4 billion to date, vs. a goal of $1.75 billion. The campaign is scheduled to conclude in December 2010.

The short-term 'F1 ' rating is based upon Vanderbilt's own internal liquidity. The rating is primarily supported by the university's significant level of highly rated, highly liquid investments. As of December 31, 2007, Vanderbilt had $4.6 billion of cash and investment assets. Of this total, $960 million represented cash, mutual funds and bonds, $770 million equity securities, and $2.8 billion of less liquid investments such as real estate and private partnerships. For Fitch's liquidity analysis, only the $960 million of cash, mutual funds and bonds were considered in assigning the 'F1 ' rating. Based on the current investment levels, which have been consistent over time, Vanderbilt would be able to fund its $283 million of outstanding variable rate bonds and the full $675 million of authorized commercial paper, in the event they were not able to be remarketed, by at least 1.0 times (x).

To limit Vanderbilt's exposure to the need for a significant liquidation of assets on any given day, the university has restricted the amount of commercial paper that may come due on any given day to $50 million.

Vanderbilt University is a private university and medical center located in Nashville, TN. The university consists of ten schools and colleges. The medical center consists of the School of Medicine, the School of Nursing, the Vanderbilt Medical Group and the hospitals and clinics.

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.