Fitch Affirms University of Massachusetts Short-Term Rating at 'F1+'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed its 'F1+' rating on the following debt issued by the Massachusetts Health and Educational Facilities Authority (MHEFA) on behalf of University of Massachusetts (UMass, or the university).

--$20 million variable-rate demand bonds, series A (UMass issue).

SECURITY

UMass revenue bonds are essentially secured by gross unrestricted revenue of the university and other legally available funds.

KEY RATING DRIVERS

RESOURCE SUFFICIENCY: The 'F1+' rating is based on UMass' ability to cover the maximum potential liquidity demands presented by its variable rate debt program by at least 1.25 times (x) from internal resources. Such resources include cash and highly liquid, highly rated investments.

UMASS' CREDIT STRENGTH: The university maintains stable operations from diverse revenue sources and modest but adequate balance sheet resources relative to debt. The debt burden remains high at 8.3% but manageable supported by adequate 1.3x coverage. Fitch rates UMass' general revenue pledge bonds 'AA', with a Stable Outlook.

STEADY FINANCIAL PERFORMANCE: The university generated break-even operating margins the last two fiscal years including fiscal 2015. Growth in student-generated revenues and improved operating support from the Commonwealth of Massachusetts (Commonwealth) combined with proactive expense management efforts are expected to provide similar operating performance in fiscal 2016.

RATING SENSITIVITIES

FINANCIAL DETERIORATION: Erosion to University of Massachusetts' internal resource base or to its general credit profile to the point where the university could no longer sufficiently cover its variable-rate obligations, while unlikely, would put downward pressure on the rating.

CREDIT PROFILE

The university was established in 1863 and encompasses five separate campuses at Amherst, Boston, Dartmouth, Lowell and Worcester. The five campuses are geographically dispersed throughout the commonwealth and possess unique and complementary missions. In fall 2015, the university combined enrolled 63,350 full-time equivalent (FTE) students. In addition, UMass has system-wide online education, which in fiscal 2015 offered approximately 1,500 online and blended courses.

UMass' financial profile is characterized by diverse revenues and a trend of historically positive but more recently break-even operations over the last two fiscal years; thin but adequate balance sheet resources; and a moderately high but manageable debt burden. Pro forma maximum annual debt service (MADS) consumes 8.3% of fiscal 2015 operating revenues, excluding any federal subsidy. Pro forma MADS coverage is 1.3x, in line with previous years.

UMass' capital plans are viewed as aggressive, but increased capital support from the commonwealth over the last several years, with the exception of fiscal 2015, is viewed favorably by Fitch, recognizing that the level of support may fluctuate as projects near completion. Importantly, UMass' capital improvement plan is flexible; future debt can be delayed.

LIQUID RESOURCES SUPPORT SHORT-TERM DEBT

UMass is required to maintain internal liquidity to support a potential failed remarketing of outstanding variable rate demand bonds (VRDB). As of Dec. 31, 2015, the university's total self-supported obligations include $20 million of VRDBs. Fitch excludes $200 million (maximum authorization) University of Massachusetts Building Authority (UMBA) tax-exempt and taxable commercial paper (CP) bank notes and $97.3 million series 2011-2 Window Bonds (guaranteed by Commonwealth) in its calculation, since neither is supported by self-liquidity.

As of Nov. 30, 2015, UMass identified approximately $747.6 million of liquid resources available to support the $20 million of series A VRDBs, including money market mutual funds with a combined capacity of $256 million. Total resources decline to approximately $565.7 million after adjusting for quality and duration per Fitch's criteria (adjusted resources), but still provides strong coverage of all self-supported variable rate debt obligations, well in excess of the 1.25x criteria requirement.

For additional information, see 'Fitch Rates University of Massachusetts Sr. Series Revs 2015-1 & Sr. Series 2015-2 Rfdg Revs 'AA'; Outlook Stable' dated Feb. 11, 2015.

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

Applicable CriteriaRating U.S. Public Finance Short-Term Debt (pub. 17 Nov 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873508Revenue-Supported Rating Criteria (pub. 16 Jun 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

Additional DisclosuresDodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998901Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998901Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160202006651/en/

Fitch Ratings
Primary Analyst
Nancy Faingar Moore
Director
+1-212-908-0725
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Joanne Ferrigan
Director
+1-212-908-0723
or
Committee Chairperson
Douglas Offerman
Senior Director
+1-212-908-0889
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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