CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'F1+' short-term rating on the following debt issued by The Board of Regents of The University of Texas System (UTS):
--$1.75 billion authorized UTS Revenue Financing System (RFS) commercial paper (CP), series A and B;
--Approximately $895.5 million RFS Bonds, series 2007B and 2008B;
--Approximately $381.1 million Permanent University Fund (PUF) bonds, series 2008A;
--$750 million authorized UTS PUF CP, series A and B.
RFS bonds and CP are secured by a lien on and pledge of all legally available revenues and fund balances of the UTS system.
PUF bonds are secured by and payable from a lien and pledge of UT's two-thirds interest in the available university fund. PUF bonds hold a senior lien; PUF CP notes hold a subordinate lien.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: UTS' strong credit quality (RFS bonds and PUF bonds both rated 'AAA' by Fitch) supports the short-term ratings. UTS has substantial resources, positive operating history, diverse revenue streams, solid enrollment and program demand, and an experienced management team. Additionally, the expertise of the University of Texas Investment Management Company (UTIMCO) is a positive factor.
SUFFICIENT LIQUIDITY: The 'F1+' rating is further supported by the ability of UTS to cover the maximum potential liquidity demands presented by its RFS and PUF CP program, and outstanding RFS and PUF variable rate bonds, by at least 1.25x, from internal resources.
MATERIAL CHANGE IN PERFORMANCE: Deterioration of the University of Texas System's general operating performance, debt service coverage, or performance of its healthcare operations, combined with a significantly weakened balance sheet, could pressure the rating. However, Fitch views such changes as unlikely at this time.
MATERIAL DECLINE IN LIQUID INVESTMENTS: UTS' ratings could be pressured by a decline in liquid investments available to cover associated securities if coverage falls below the minimum 1.25x expected by Fitch. Such a decline is not expected at this time.
UTS was established under the 1876 Texas Constitution. Its current nine academic institutions and six health care institutions are geographically dispersed throughout the state. The system enjoys strong academic demand. Headcount was approximately 217,300 in fall 2014, about 2% more than the prior year. UTS' medical school and healthcare operations represent a significant proportion of annual operating revenue, typically around 30%. UTS benefits from a two-thirds share of the Texas-constitution established PUF, as well as other endowments. The PUF market value at Aug. 31, 2014 alone was $17.3 billion; estimated market value at July 31, 2015 (unaudited) was $17.58 billion.
Fitch's liquidity calculations as of June 30, 2015 include debt for which UTS provides self-liquidity in the event of an unremarketed CP roll-over or bond put. This includes RFS CP and bonds, PUF CP notes and bonds, as well as Texas A&M University System's (TAMUS) PUF CP and flexible-rate notes, of which all have self-liquidity provided under UTIMCO funding agreements.
UTS uses its $750 million authorized PUF CP program and its recently increased $1.75 billion authorized RFS CP program to finance eligible capital projects on an interim basis. The UTS board has covenanted to provide internal liquidity support for any PUF or RFS variable rate demand bonds, its $750 million authorized PUF CP program, and its $1.75 billion authorized RFS CP program, all from legally available funds.
For that purpose, UTS entered into a security purchase agreement with UTIMCO. UTIMCO agrees to purchase any PUF- or RFS-related debt that is not renewed, remarketed or refunded. TAMUS has entered into a similar agreement with UTIMCO to support its obligation to provide internal liquidity for its $125 million authorized PUF-secured CP program and its $125 million authorized PUF flexible-rate notes. Thus, Fitch includes both UTS and TAMUS related VRDB, CP and flexible-rate notes authorizations in self-liquidity calculations. TAMUS rescinded its $125 million flexible-rate note authorization on Sept. 3, 2015, which action will be reflected in future Fitch self-liquidity calculations.
As of June 30, 2015 (the most current date available), UTIMCO identified approximately $6.09 billion (adjusted per Fitch criteria) of highly liquid funds available daily, which could be used to support the approximately $4.026 billion outstanding or authorized debt. This liquidity coverage was approximately 1.5x, which exceeds Fitch's expectation of at least 1.25x coverage for an 'F1+' rating. About $1 billion of self-liquidity debt was authorized but unissued at that date; when that is excluded liquidity coverage improves to about 1.9x.
Additional information is available at 'www.fitchratings.com'.
Rating U.S. Public Finance Short-Term Debt (pub. 07 Jan 2015)
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
U.S. College and University Rating Criteria (pub. 12 May 2014)
Dodd-Frank Rating Information Disclosure Form