Fitch Ratings assigns its underlying rating of 'A+' to
the Massachusetts Health and Educational Facilities Authority (Mass
HEFA) revenue bonds in the approximate amounts of $266 million to be
issued as Univ of Mass Issue Series D (2006), and Worcester City
Campus Corp (WCCC) Issue Series E (2006) and Series F (2006). In
addition, Fitch affirms its 'A+' rating on the bonds listed below. The
bonds are expected to sell on or about Oct. 2 via negotiation with a
syndicate led by Merrill Lynch & Co. The bonds are expected to be
insured. The Rating Outlook is stable.
Proceeds will be used to refund a portion of various outstanding bonds. Proceeds of the series D (2006) bonds will refund a portion of the Mass HEFA Univ of Mass bonds, series B and series C; proceeds of the series E (2006) bonds to refund a portion of the WCCC Series B bonds; and proceeds of the series E (2006) bonds to refund a portion of WCCC bonds, series C. In addition, approximately $125 million of bond proceeds will be used to finance the construction of an Advanced Education and Clinical Practice Center at Worcester and new research and administrative space in support of the Massachusetts Biologics facility in Mattapan in Boston and operated by UMass's medical school.
Bond payments on the WCCC bonds are an absolute and unconditional obligation of WCCC pursuant to a loan and trust agreement. WCCC, is a tax-exempt organization created in 1992 and is considered a subsidiary of the University of Massachusetts (UMass). WCCC's payments on its series E bonds are further secured by the obligation of UMass to transfer funds due under the loan and trust agreement not otherwise paid by WCCC and WCCC's payments on its series F bonds are further secured by payments it receives from UMass under the terms of a lease agreement, of amounts that are sufficient to pay debt service on the series F bonds. As a result,the 'A+' underlying rating is based primarily on UMass's credit strengths.
Credit strengths supporting the 'A+' rating include UMass's stable enrollment, diversified revenue base, and relatively consistent operating performance. UMass's financial performance reflects the benefits of the improving financial condition of the Commonwealth of Massachusetts, accounting for one-quarter of the university's unrestricted revenues. Fitch rates the Commonwealth's general obligation bonds 'AA'. For fiscal 2005, tuition and fee revenue represented 19% of UMass's unrestricted revenues.
The revenue diversity has contributed to the university's relatively stable operating performance. For fiscals 2002 through 2005, the average operating margin was 3.2%. The margin for fiscal 2006 is projected to be break-even. Fitch expects public universities to operate at break-even.
The primary credit concerns include modest liquidity and a $2.14 billion capital program that could lead to a material increase in debt over the next one to five years. Fitch estimates that the university had enough liquidity to cover 20% or slightly over two months of fiscal 2005 expenses. The Fitch liquidity median for an 'A' rated public university is 37.1%. UMass's current debt burden as measured by maximum annual debt service as a percent of revenues that would be needed to service the debt is 4.7%. Fitch's median for 'A' rated universities is 3.6%. However, UMass expects its debt levels to increase as they fund their capital improvement program.
The underlying rating of 'A+' is affirmed for the following revenue bonds issued by the Massachusetts Health and Educational Facilities Authority:
University of Massachusetts issues:
-- Series 2001B (insured: FGIC)
-- Series 2002C (insured: FGIC)
Worcester City Campus Corp. issues:
-- Series 2000A (insured FGIC)
-- Series 2001 B (insured FGIC)
-- Series 2002C (insured MBIA)
-- Series 2005D (insured FGIC)
The underlying rating of 'A+' is affirmed for the following bonds issued by the University of Massachusetts Building Authority:
-- Senior Series 2000-2 (insured Ambac)
-- Senior Series 2003-1 refunding (insured Ambac)
-- Senior Series 2004-1 (insured Ambac)
-- Senior Series 2005-1 refunding (insured Ambac)
-- Senior Series 2005-2 refunding (insured Ambac)
-- Senior Series 2006-1 refunding (insured Ambac)
-- Senior Series 2006-2 refunding (insured Ambac)
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Proceeds will be used to refund a portion of various outstanding bonds. Proceeds of the series D (2006) bonds will refund a portion of the Mass HEFA Univ of Mass bonds, series B and series C; proceeds of the series E (2006) bonds to refund a portion of the WCCC Series B bonds; and proceeds of the series E (2006) bonds to refund a portion of WCCC bonds, series C. In addition, approximately $125 million of bond proceeds will be used to finance the construction of an Advanced Education and Clinical Practice Center at Worcester and new research and administrative space in support of the Massachusetts Biologics facility in Mattapan in Boston and operated by UMass's medical school.
Bond payments on the WCCC bonds are an absolute and unconditional obligation of WCCC pursuant to a loan and trust agreement. WCCC, is a tax-exempt organization created in 1992 and is considered a subsidiary of the University of Massachusetts (UMass). WCCC's payments on its series E bonds are further secured by the obligation of UMass to transfer funds due under the loan and trust agreement not otherwise paid by WCCC and WCCC's payments on its series F bonds are further secured by payments it receives from UMass under the terms of a lease agreement, of amounts that are sufficient to pay debt service on the series F bonds. As a result,the 'A+' underlying rating is based primarily on UMass's credit strengths.
Credit strengths supporting the 'A+' rating include UMass's stable enrollment, diversified revenue base, and relatively consistent operating performance. UMass's financial performance reflects the benefits of the improving financial condition of the Commonwealth of Massachusetts, accounting for one-quarter of the university's unrestricted revenues. Fitch rates the Commonwealth's general obligation bonds 'AA'. For fiscal 2005, tuition and fee revenue represented 19% of UMass's unrestricted revenues.
The revenue diversity has contributed to the university's relatively stable operating performance. For fiscals 2002 through 2005, the average operating margin was 3.2%. The margin for fiscal 2006 is projected to be break-even. Fitch expects public universities to operate at break-even.
The primary credit concerns include modest liquidity and a $2.14 billion capital program that could lead to a material increase in debt over the next one to five years. Fitch estimates that the university had enough liquidity to cover 20% or slightly over two months of fiscal 2005 expenses. The Fitch liquidity median for an 'A' rated public university is 37.1%. UMass's current debt burden as measured by maximum annual debt service as a percent of revenues that would be needed to service the debt is 4.7%. Fitch's median for 'A' rated universities is 3.6%. However, UMass expects its debt levels to increase as they fund their capital improvement program.
The underlying rating of 'A+' is affirmed for the following revenue bonds issued by the Massachusetts Health and Educational Facilities Authority:
University of Massachusetts issues:
-- Series 2001B (insured: FGIC)
-- Series 2002C (insured: FGIC)
Worcester City Campus Corp. issues:
-- Series 2000A (insured FGIC)
-- Series 2001 B (insured FGIC)
-- Series 2002C (insured MBIA)
-- Series 2005D (insured FGIC)
The underlying rating of 'A+' is affirmed for the following bonds issued by the University of Massachusetts Building Authority:
-- Senior Series 2000-2 (insured Ambac)
-- Senior Series 2003-1 refunding (insured Ambac)
-- Senior Series 2004-1 (insured Ambac)
-- Senior Series 2005-1 refunding (insured Ambac)
-- Senior Series 2005-2 refunding (insured Ambac)
-- Senior Series 2006-1 refunding (insured Ambac)
-- Senior Series 2006-2 refunding (insured Ambac)
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
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