Fitch Rates University of Texas System's 2009B & 2009D RFS Bonds 'AAA'

Business Wire, June 04, 2009

NEW YORK -- Fitch Ratings rates approximately $625,000,000 of revenue financing system (RFS) bonds issued by the Board of Regents of The University of Texas System (the system) as follows:

--$330,000,000 RFS taxable bonds, series 2009B (Build America Bonds-Direct Payment to Issuer);

--$295,000,000 RFS tax-exempt bonds, series 2009D.

The series 2009B and series 2009D bonds (the bonds), which will be issued in a traditional fixed-rate mode, are expected to price via negotiated sale on or before June 30, 2009. Approximately $355.6 million of bond proceeds will be applied, along with other funds of the system, to refinance outstanding commercial paper (CP) notes. Bond proceeds will also provide approximately $230.9 million of funding for various capital projects; enable the system to refund a portion of outstanding RFS debt, depending upon market conditions at the time of sale; and pay for various costs of issuance.

Fitch also affirms the system's debt ratings as follows:

--Approximately $2.6 billion of outstanding RFS fixed-rate bonds at 'AAA';

--Approximately $1 billion of outstanding RFS variable-rate demand bonds (VRDBs) at 'AAA/F1 ';

--$1.25 billion RFS CP program, series A (tax-exempt) and series B (taxable) at 'F1 ' (approximately $958.3 million of CP series A notes are currently outstanding).

The Rating Outlook is Stable.

RFS debt is secured by a lien on and pledge of all legally available revenues, funds and balances of the system's 15 member institutions, including tuition and auxiliary receipts but excluding state appropriations, higher education assistance fund (HEAF) payments, restricted gifts, and certain faculty practice plan revenues. As of Aug. 31, 2008, the most recent date for which information is available, pledged revenues totaled $5.9 billion, excluding funds and balances. The system also expects to receive a cash subsidy payment from the United States Treasury equal to 35% of the interest payable on the series 2009B bonds which the system expects to designate as Build America Bonds for purposes of The American Recovery and Reinvestment Act of 2009. This subsidy payment will constitute pledged revenues and may be applied by the system for any lawful purpose, including the payment of debt service on the series 2009B bonds and other parity RFS debt. While from a credit standpoint the receipt of this subsidy is immaterial to the system's financial profile, the failure of the federal government to provide this subsidy would subject the series 2009B bonds to extraordinary optional redemption.

The 'AAA' rating is supported by the system's diversified revenues, consistently strong financial performance, manageable debt burden, and experienced management team. Material credit risks remain minimal. While the system's fall 2008 enrollment (195,642 students) grew at only a modest rate (.7%) from the prior fall semester, tuition and fee revenue generated by enrollment represents only 11% of its total revenues. The four main funding sources for the system are healthcare operations (33% of total revenues, including professional fees associated with faculty practice plans); sponsored programs, largely funded by the federal government (20%); state appropriations (16%); and investment income (14%). The breadth and diversity of various funding sources was viewed as a positive in the rating process. The system's available funds, including cash and investments not restricted, increased to $7.1 billion as of Aug. 31, 2008, representing 63.6% of fiscal 2008 expenditures and 149.4% of proforma RFS bonds and CP notes, including the bonds ($4.7 billion). At present, the system's management expects operating performance for fiscal 2009, on a GAAP basis, to be below the fiscal 2008 level (8%) as it absorbs increased depreciation expenses and unfunded costs associated with damage caused by Hurricane Ike at the Galveston campus.

The 'F1 ' rating is based on the system's financial resources available to cover maximum liquidity demands. As of April 30, 2009, the system identified approximately $4.9 billion of highly liquid funds, available daily, which could be used to support its variable-rate programs, including borrowings under the RFS and Permanent University Fund (PUF) bond programs. Assuming maximum draws under the RFS ($1.25 billion) and PUF ($500 million) CP programs, and including $1.4 billion in RFS and PUF variable-rate demand bonds, highly liquid funds would provide over 1.2 times (x) coverage of the maximum system variable-rate authorization and approximately 2.4x coverage of the system's daily variable-rate maximum. It is recognized that UTIMCO holds significant additional liquid assets on behalf of the system to support its variable-rate programs. However, the conversion of these instruments to cash would not likely be immediate.