Fitch Affirms Vanderbilt University's (TN) Short-Term Rating at 'F1+'

NEW YORK--()--Fitch Ratings has affirmed its 'F1+' rating on Vanderbilt University's (Vanderbilt, or the university) $675 million taxable and tax-exempt commercial paper (CP) program. Tax-exempt CP is issued by the Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, TN.

SECURITY

CP notes are an unsecured general obligation of Vanderbilt, payable from all legally available funds.

KEY RATING DRIVERS

UNIVERSITY FINANCIAL STRENGTH: Vanderbilt's strong financial profile is evidenced by generally positive operations, substantial balance sheet resources, and a manageable debt burden; coupled with strong reputational and student demand characteristics. Counterbalancing credit factors include the university's current exposure to the healthcare sector via the operations of the Vanderbilt University Medical Center (VUMC). Fitch maintains a long-term 'AA+' rating on Vanderbilt's outstanding revenue bonds.

SUFFICIENT LIQUID RESOURCES: Vanderbilt has the ability to cover the maximum potential liquidity demands presented by its variable-rate debt programs by 2x from internal resources. Such resources include cash; highly liquid, highly rated investments; and dedicated liquidity facilities. Investments are discounted based on Fitch's criteria.

RATING SENSITIVITIES

FINANCIAL DETERIORATION: Erosion of Vanderbilt University's internal liquid resource base or of its general credit profile to the point where the university could no longer sufficiently cover its obligations would put downward pressure on the rating.

CREDIT PROFILE

Vanderbilt is a private comprehensive university and medical center located in Nashville, TN. The university consists of 10 schools and colleges, and the medical center consists of the School of Medicine, the School of Nursing, the Vanderbilt Medical Group and the Vanderbilt University Hospitals and Clinics.

Fall 2014 full-time equivalent enrollment totaled 12,143 students and has been very stable since fall 2010. For fall 2015, the university received 31,464 freshmen applications, resulting in an impressive 11.7% acceptance rate, with a solid 43.7% of accepted students choosing to enroll. Fall 2015 enrollment is expected to remain generally stable.

VUMC TRANSITION

Vanderbilt announced in November 2014 that VUMC would be reconfigured as a not-for-profit academic medical center legally separate and financially distinct from the university. The university believes the transition will give VUMC greater flexibility to adapt to the changing U.S. health care environment. The university and VUMC are expected to maintain close ties and to continue sharing services after the transition, which should be completed during calendar 2016. Fitch will evaluate the effects of the transition on the university's credit profile as additional details become available, but we expect the university's financial position to remain strong.

LIQUID RESOURCES SUPPORT SHORT-TERM DEBT

The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover potential maximum liquidity demands presented by Vanderbilt's taxable and tax-exempt CP program. Of Vanderbilt's substantial cash and investments, approximately $949.5 million, including cash and cash equivalents; money market funds; and investment grade corporate notes (after discounts based on asset type and maturity per Fitch's short-term rating criteria) was available as of Aug. 31, 2015. Of that amount, $833.8 million is available on a same-day or next-day basis. To supplement internal liquidity sources, the university maintains the ability to draw on two dedicated hybrid lines of credit in the aggregate amount of $400 million.

Including these liquidity facilities, Vanderbilt's available liquid resources totaled $1.350 billion as of Aug. 31, 2015 ($1.234 billion same-day or next-day) and covered its total CP authorization of $675 million ($263.8 million outstanding as of Aug. 31, 2015) by a healthy 2.00x. Fitch expects coverage of at least 1.25x for an 'F1+' rating. The university also has $67 million of outstanding series 2012B floating rate notes that have a mandatory put on Oct. 1, 2017. Coverage would still be a solid 1.82x when including these put bonds.

To minimize potential daily calls on its liquidity, the university limits the amount of CP notes that can come due on a given day to $50 million and in a given week to $100 million. Vanderbilt maintains liquidation procedures detailing the process by which a need for internal liquidity would be managed, which are updated quarterly. It also maintains a $100 million general use line of credit that is available, but excluded from Fitch's above liquidity coverage calculation.

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

Related Research:

-- 'Fitch Affirms Vanderbilt University's (TN) Bonds at 'AA+'; Outlook Stable' (Oct. 14, 2014).

Applicable Criteria

Rating U.S. Public Finance Short-Term Debt (pub. 07 Jan 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=846969

Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. College and University Rating Criteria (pub. 12 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
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Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991035

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Tipper Austin, +1-212-908-9199
Associate Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan, +1-212-908-0723
Senior Director
or
Committee Chairperson
Eva Thein, +1-212-908-0674
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Tipper Austin, +1-212-908-9199
Associate Director
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan, +1-212-908-0723
Senior Director
or
Committee Chairperson
Eva Thein, +1-212-908-0674
Senior Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com