NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'F1+' rating on the Board of Regents of the University of North Texas' (UNT) $100 million commercial paper (CP) notes program series A.
SECURITY
The CP notes are secured by and payable from all legally available UNT revenues, funds, and balances on parity with UNT's outstanding long-term debt obligations.
KEY RATING DRIVERS
STRONG RATING AND LIQUIDITY: UNT's strong long-term rating ('AA' with a Negative Outlook) and ample liquidity sources support the 'F1+' on its CP program. Fitch believes the resolution of a state overfunding issue expected later this year is unlikely to have an effect on UNT's CP rating, consistent with Fitch's short-term rating criteria.
SOLID COVERAGE: Total resources provided solid 2.13x coverage of maximum potential requirements at Feb. 27, 2015, which was little changed from the prior year. UNT relies on its balance sheet resources to support the CP program; there is no bank liquidity facility.
SOUND OVERALL PROFILE: UNT's location in a demographically vibrant state (GOs rated 'AAA' with a Stable Outlook by Fitch) supports healthy student demand and enrollment trends. The university's balance sheet ratios approximate Fitch's 'AA' rating category medians and fiscal 2014 operating results are measurably improved from recent years.
RATING SENSITIVITIES
OVERALL STRENGTHS BENEFIT RATING: UNT's strong long-term credit quality, coupled with its ample liquidity sources, should continue to support the 'F1+' on its CP program for the foreseeable future.
CREDIT PROFILE
The UNT system consists of the University of North Texas at Denton; University of North Texas at Dallas; University of North Texas Health Science Center at Fort Worth; University of North Texas Dallas College of Law; and the System Administration. Total headcount enrollment increased by 2.1% in fall 2014 to 31,974.
LONG-TERM RATING OUTLOOK REVISION
Fitch revised UNT's long-term Rating Outlook to Negative from Stable in April 2014, reflecting an unfavorable trend of fluctuating and significantly weakened GAAP-based operating margins of 1.2% and -0.2% in fiscal years 2012 and 2013, respectively. The university's discovery of internal administrative errors that resulted in state overfunding for employee benefits compounded Fitch's concerns.
UNT's fiscal 2014 operating margin improved to 3.7%, and fall 2014 (fiscal 2015) enrollment growth remains healthy. However, the state overfunding issue remains unresolved and a potential source of financial pressure. The conclusion of the state legislative session, as well as internal and independent audits, should bring more clarity this year. The scope of the issue ranges from $0-$64.6 million, according to UNT.
AMPLE LIQUIDITY SOURCES
UNT's strong long-term credit characteristics, coupled with its available liquidity sources, support the 'F1+' rating on its $100 million CP program, of which $25 million may be issued in taxable form. The program has been an inexpensive source of interim financing, reflecting, in part, UNT's credit quality. The currently outstanding CP balance is $76.1 million.
Total available sources provided healthy 2.13x the maximum borrowable amount of CP at Feb. 27, 2015. This comfortably exceeded Fitch's expected metric of at least 1.25x the maximum program size for the 'F1+' rating. UNT's liquid investments consist primarily of money market funds and local government investment pools totaling $213.5 million. There is no bank liquidity facility to support the program.
LIQUIDATION PROCEDURES PLAN
UNT has a liquidation procedures plan that outlines how the university would manage a failed rollover of CP notes. The plan delineates the specific timing sequences, procedures for liquidation, and authorized personnel responsible for these steps.
Fitch views favorably the maintenance of such procedures to ensure the proper redemption of maturing CP.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating U.S. Public Finance Short-Term Debt' (Jan. 7, 2015);
--'Revenue-Supported Rating Criteria' (June 16, 2014);
--'U.S. College and University Rating Criteria' (May 12, 2014);
--'Fitch Affirms the Univ. of North Texas' System Rev & Refunding Bonds at 'AA' and CP at 'F1+'' (April 9, 2014).
Applicable Criteria and Related Research:
Rating U.S. Public Finance Short-Term Debt
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982533
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