NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns 'AA-' ratings to the following University of Connecticut (UConn) general obligation (GO) bonds:
--$189 million GO bonds (2013 series A);
--$36 million GO refunding bonds (2013 series A).
The par amount for the refunding series may change upon final sale, expected via negotiated sale on or about July 16.
In addition, Fitch affirms the following ratings:
--$828.8 million in outstanding UConn GO bonds at 'AA-'.
The Rating Outlook is Negative.
The bonds are general obligations of the University of Connecticut, additionally secured by a pledge of and lien on a State of Connecticut debt service commitment for principal and interest, appropriated from the state's general fund without further legislative approval. The bonds are not general obligations of the state, and its full faith and credit are not pledged.
KEY RATING DRIVERS
RATING LINKED TO STATE: UConn's GO bonds are rated one notch below the GO bond rating of the State of Connecticut (the state) based on the state's debt service commitment equal to principal and interest and appropriated without further legislative approval. Higher education is a constitutional state priority, and legal protections are strong.
STATE'S NEGATIVE OUTLOOK BASED ON FISCAL VULNERABILITY: The Negative Outlook on the state's GO rating reflects the state's reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state's financial cushion.
HIGH WEALTH LEVELS: Connecticut is the nation's wealthiest state as measured by per capita personal income. Economic recovery has been slow and uneven since the recession.
CYCLICAL REVENUES AND SPENDING PRESSURE: State revenue performance is cyclical, while high fixed costs limit its ability to respond during revenue downturns.
HISTORICAL WILLINGNESS TO BUILD BALANCES: During past economic recoveries the state has demonstrated a willingness and ability to rapidly repay deficit borrowing and rebuild its rainy day balance. With the slow nature of the current recovery, the state does not expect this to happen until after the end of the current biennium in 2015.
HIGH DEBT: Tax-supported debt is high for a U.S. state. Most GO bonds, excluding GO bonds issued to fund the teachers' retirement system, amortize rapidly.
SIGNIFICANT PENSION OBLIGATIONS: Unfunded liabilities for employees are significant, including for state employee and teacher pensions. The state fully funds actuarially calculated pension contributions and has taken steps to reform retiree liabilities.
The UConn GO bonds are issued by and carry the GO pledge of UConn, but their security rests with the debt service commitment of the state. Principal and interest are paid annually from the state's general fund, appropriated and obligated for payment by the State Treasurer without requiring further legislative approval. Fitch rates the state's own GO bonds 'AA' with a Negative Outlook. State general fund obligations, with the strength of continuing appropriations, are seen as slightly less well secured, and the UConn bonds fall within this category. The state's debt service commitment is separate from the operating appropriations and allotments that the state makes available to the university.
Over the last two decades, the state has prioritized renewal and expansion of facilities at UConn, the state's flagship public university. The UConn GO bonds have been issued as part of the state's UConn 2000 program, first enacted in 1995 and recently extended through 2024. Under the most recent extension, the fourth since the program was established, the program's total authorized amount will rise to $4.3 billion over the 1995-2024 period. Of this amount, approximately $1.6 billion in debt service commitment bonds will have been issued for university capital projects to date, with $828 million outstanding. The latest extension was authorized in the context of a new university effort to expand UConn teaching and research facilities, particularly in science and technology fields.
For further information on the State of Connecticut, please see Fitch's press release dated July 2, 2013, 'Fitch Rates Connecticut's $200MM GO Bonds 'AA'; Revises Outlook to Negative,' at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria