Fitch Ratings has assigned the following ratings to the debt issues for Ohio State University (OSU) listed below:
--$221 million fixed-rate general receipts bonds, series 2008A 'AA';
--$128 million variable-rate demand rate general receipts bonds, series 2008B 'AA/F1+'.
The series 2008 bonds are expected to price on or about Sept. 29 via negotiated sale. Fitch has also affirmed the following outstanding ratings for OSU:
--$548 million outstanding general receipt bonds 'AA';
--$404 million variable-rate demand general receipt bonds 'AA/F1+'.
The Rating Outlook is Stable.
The series 2008 bonds represent the initial issuance of the university's anticipated $1.5 billion debt financing of its six-year capital improvement plan (CIP). Proceeds will be used to fund the construction, repair and renovation of various capital improvements, refund approximately $81 million of OSU's outstanding commercial paper, and pay costs of issuance. General receipt revenue bonds are secured by a pledge of all unrestricted moneys received by the university, excluding state appropriations. For fiscal 2007, pledged general receipts totaled $2.5 billion.
The long-term 'AA' rating is based on OSU's position as the state's flagship and premier research institution, positive financial operations, diversified revenues, and stable enrollment. Primary credit concerns are OSU's plan to issue up to $1 billion of additional debt over the next four years and exposure to the volatile health care sector as OSU Health System revenues represent the largest component of the university's revenue base. However, the 1,080-bed health system has consistently generated robust operating margins with solid utilization. Although OSU's debt levels are anticipated to increase, Fitch expects the proforma debt burden to remain manageable.
The short-term 'F1+' rating is based upon OSU's own internal liquidity. The rating is primarily supported by the university's significant level of highly rated, highly liquid investments. As of July 31, 2008, OSU had approximately $772 million of short and intermediate term non-endowment portfolio, comprised of cash, cash equivalents and mutual funds. Based on this current level of liquid funds, OSU would be able to fund its proforma $545.4 million of variable rate bonds, in the event they were not able to be remarketed, 1.4 times (x).
OSU has generated positive operating margins for the past five fiscal years and grown its balance sheet resources. Its operating margin in fiscal 2007 was 2%, while available funds (unrestricted and temporarily restricted cash and investments less permanently restricted net assets) for the same period increased 4.6% to $1.3 billion. As of July 31, 2008, OSU had a $2.023 billion long-term investment portfolio, inclusive of its endowment. The university's diversified revenue resources include health system revenues (38% of total operating revenues in fiscal 2007), student generated revenues (21%), grants and contracts (16.1), and state appropriations (12%). OSU's FTE enrollment has grown, increasing 2.1% in fall 2007 to 59,097 students. OSU's main campus, located in Columbus, served over 52,500 students or 87% of its total fall 2007 headcount of 60,347. Student demand is reflected in improved selectivity and stable matriculation rates. OSU's fall 2007 acceptance rate was 72.2%, down from 75.8% in fall 2006, while its matriculation rate remained strong at 48.9%.
OSU is one of 13 state-supported universities in Ohio and consists of thirty schools and colleges, the Graduate School, and the Agricultural Technical Institute, with extended campuses located in Lima, Mansfield, Marion, Newark, and Wooster. The OSU Health System consists of four hospitals and over a dozen primary and specialty care sites throughout central Ohio.
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