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

Business Wire, June 04, 2009

Professional management of the system's financial assets, by UTIMCO, a 501(c)(3) corporation that was created in 1996 for that purpose, has supported significant appreciation of investment balances over time. However, severe financial market turbulence over the past nine months has resulted in a significant decline in UTIMCO's total assets under management, with the March 31, 2009 portfolio value ($17.4 billion) down approximately 35% from a peak of $23.5 billion on Aug. 31, 2007. Reflecting modest financial market improvement since the end of March, the value of UTIMCO's total assets under management increased approximately 3.7% during the month of April, to $18 million.

Importantly, Fitch notes UTIMCO's performance remains is in line with the results experienced by other colleges and universities and recognizes the majority of UTIMCO's holdings are long-term investments and thus not relied upon for short-term cash flow or other operating needs. While UTIMCO remains committed to its current strategy for asset allocation, it plans to continue gradually reducing the minimum required liquidity in each of its endowment funds and intermediate term fund as it pursues higher return opportunities from less liquid alternative asset classes such as private equity. Concurrent with this expected increase in portfolio allocation to more volatile asset classes, UTIMCO plans to bolster its portfolio management and monitoring activities, which Fitch views favorably. The short-term fund will continue to have maximum liquidity as its primary objective.

Maximum annual debt service (MADS) on the system's $3.6 billion of currently outstanding RFS bonds totals $315 million (fiscal 2011), representing a very manageable 2.6% of fiscal 2008 revenues. Including debt service on the bonds, which declines slowly from a peak of $43 million in fiscals 2012 through 2016 to $13 million in fiscal 2041, proforma MADS of $359 million (fiscal 2012 and 2013) would consume just 3% of fiscal 2008 revenues. Approximately 20% of proforma RFS bonds ($4.2 billion) is classified as tuition revenue bonds (TRBs), with related debt service expected to be paid by like-amount increases in state appropriations. Through the remainder of fiscal 2009, Fitch expects the system will issue approximately $100 million of additional RFS (including TRBs) bonds as it continues to fund an $8.8 billion capital improvement plan (CIP) through 2014. While the magnitude and frequency of the system's RFS debt issuance underscores an ongoing need to reinvest across its 15 campuses, management has a long track record of prudently implementing capital projects commensurate with available resources.

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