Moody’s Investors Service announced Monday it has assigned a rating of Aa1 to the University of Colorado’s proposed up to $156 million University Enterprise Refunding Revenue Bonds, Taxable Series 2020B-2, with a proposed final maturity in fiscal 2048. Moody’s also assigned a Aa1/VMIG 1 rating to $225 million in proposed multimodal University Enterprise Revenue Bonds, Series 2020A-1 (Variable Rate Demand Bonds) (Green Bonds), Series 2020A-2 (Variable Rate Demand Bonds) and University Enterprise Refunding Revenue Bonds, Series 2020B-1 (Variable Rate Demand Bonds).
Moody’s also affirmed outstanding Aa1 and P-1 ratings on approximately $1.7 billion of outstanding university enterprise revenue bonds, commercial paper, and extendable commercial paper programs. The outlook is stable.
Ratings rationale: The assignment and affirmation of the Aa1 rating reflects CU’s role as the state of Colorado’s (Aa1 stable, issuer rating) flagship institution, with excellent strategic positioning, a significant research enterprise and important role as a provider of medical education for the state. Campus locations in Boulder, Denver, Aurora and Colorado Springs – along Colorado’s Front Range – continue to bolster student draw and provide mitigation to potential short-term enrollment disruptions stemming from the coronavirus pandemic. Additionally, CU’s diverse and substantial scope of operations and sizeable liquidity provide mitigation to potential financial impacts of the pandemic. Before the pandemic, CU has produced strong, positive operating performance with sound revenue growth, which Moody’s expects to resume after fiscal 2021.
Tempering the long-term credit quality of the university is very limited state support for operations and capital, ongoing need for capital investment across its multiple campuses, and exposure to potentially volatile health care operations through its affiliation with the University of Colorado Hospital Authority. CU also has a high underfunded pension liability, which will worsen due to recent financial market performance.
The assignment of the VMIG 1 ratings on the proposed variable rate demand bonds are derived from (i) the credit quality of TD Bank, N.A. (the Bank) as provider of liquidity support for each Series in the form of a Standby Bond Purchase Agreements (SBPA), (ii) the long-term rating of the Bonds and (iii) Moody's assessment of the likelihood of an early termination or suspension of the SBPAs without a mandatory tender. Events that would cause termination or suspension of the liquidity facilities without a mandatory purchase of the Bonds are directly related to the credit quality of the Board. Accordingly, the likelihood of any such event occurring is reflected in the long-term rating, Aa1, assigned to the bonds. Moody's current short-term Counterparty Risk (CR) Assessment of the Bank is P-1(cr).
Affirmation of the P-1 ratings on commercial paper notes are based on the strength of the university's sizeable available liquidity, strong internal liquidity and treasury management functions, as well as strong market access.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus (COVID-19) situation has created dislocation across industries and geographies, triggering urgent challenges for many businesses and organizations to address. The prospects and path of economic recovery for the second half of the year and beyond depend on factors including when and at what pace lockdown measures will ease and to what extent fiscal and monetary policy measures are available to assist businesses and organizations. The combined credit effects of these developments are unprecedented.
Rating outlook: The stable outlook reflects expectations that CU will manage through coronavirus-related impacts through fiscal 2021 with budget and operational adjustments. It also reflects expectations that operating performance will improve in fiscal 2022.