Fitch Affirms Texas A&M Univ. System Rev Financing System CP Rating at 'F1+'

CHICAGO--()--Fitch Ratings affirmed its 'F1+' rating on the $300 million authorized Revenue Financing System (RFS) tax-exempt commercial paper (CP) notes issued by the Board of Regents of the Texas A&M University System (TAMUS or the university).

SECURITY

RFS debt is a special obligation secured by a lien and pledge of all legally available revenues and fund balances of the system. The RFS CP is issued on parity with outstanding RFS bonds.

KEY RATING DRIVERS

FINANCIAL STRENGTH OF TAMUS: The university (RFS bonds rated 'AA+' by Fitch) maintains a strong financial profile supported by consistently positive operating results, a diverse revenue base, substantial balance sheet resources, manageable debt burden, and solid student demand. The university also benefits from a 1/3 interest in Permanent University Fund income (market value of $14.8 billion at Aug. 31, 2013).

SUFFICIENT LIQUID RESOURCES: The 'F1+' rating is based on TAMUS' ability to cover the maximum potential liquidity demands presented by its tax-exempt RFS CP program by at least 1.25x from internal resources. Such resources include university-held cash and highly liquid, highly rated investments.

RATING SENSITIVITY

MATERIAL DECLINE IN LIQUID INVESTMENTS: While not expected, the 'F1+' rating could be pressured by a decline in available liquid investments such that coverage of the outstanding RFS CP falls below the 1.25x minimum expected by Fitch.

CREDIT PROFILE

TAMUS is one of two public flagship university systems in Texas, and is also the state's designated land grant institution. It consists of 11 academic institutions located throughout Texas, seven research and service agencies, a health sciences center, and a law school. Since fall 2009, total system headcount increased 14.8% reaching 131,241 in fall 2013. College Station is TAMUS' flagship campus, and has the largest enrollment at about 53,000.

TAMUS benefits from a diversified revenue base, with three primary revenue streams contributing approximately equally to operating revenues. In fiscal 2013, major operating revenues came from student-generated revenues and grant and contract revenues (each about 27%), and state appropriations (about 23%).

TAMUS' operations are historically positive, consistent with Fitch's expectations for a public college or university. Operating margins averaged 3.8% over the last five fiscal years, including a strong 5.5% surplus in fiscal 2013.

Balance sheet resources remain solid. Available funds, defined by Fitch as cash and investments less restricted non-expendable and certain expendable net assets, were approximately $3.3 billion at the end of fiscal 2013. As a percentage of operating expenses ($3.7 billion) and outstanding debt (approximately $2.9 billion), this represented a solid cushion of 90% and 110%, respectively. Fitch considers these liquidity levels consistent with the rating category.

The system provides self-liquidity for its RFS CP program, which has a maximum authorization of $300 million; $118.7 million is currently outstanding. At June 30, 2014, TAMUS investments available for this purpose totaled $4.2 billion. After discounting to adjust for credit quality and duration of assets per Fitch's criteria, available resources were a lower $1 billion. This discounted level still provided ample 3.3x coverage of the maximum authorization, well in excess of the 1.25x coverage expected to achieve the 'F1+' rating. TAMUS' procedures for handling a failed remarketing of CP are regularly updated, reflecting favorably on management. The most current version provided by TAMUS is dated August 2014.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Rating U.S. Public Finance Short-Term Debt', Dec. 9, 2013;

--'U.S. College and University Rating Criteria', May 2014;

--'Fitch Rates Texas A&M Univ. System Rev Financing System Bonds 'AA+'; Outlook Stable', Aug. 22, 2013.

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Rating U.S. Public Finance Short-Term Debt

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724680

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=851875

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Contacts

Fitch Ratings
Primary Analyst
Susan Carlson
Director
Fitch Ratings, Inc.
+1-312-368-2092
70 West Madison Street
Chicago, IL. 60602
or
Secondary Analyst
Colin Walsh
Director
+1-212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Director
+1-212-908-0723
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Susan Carlson
Director
Fitch Ratings, Inc.
+1-312-368-2092
70 West Madison Street
Chicago, IL. 60602
or
Secondary Analyst
Colin Walsh
Director
+1-212-908-0767
or
Committee Chairperson
Joanne Ferrigan
Director
+1-212-908-0723
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com