Fitch Ratings assigns an 'AA-' rating to approximately $100 million of Board of Regents of the University of Hawaii (UH) university revenue bonds. Concurrently, Fitch upgrades the unenhanced long-term ratings on UH's outstanding bonds as follows:
--Approximately $112.5 million outstanding university revenue bonds to 'AA-' from 'A+';
--Approximately $146.2 million outstanding university bonds to 'AA-' from 'A+'.
The Rating Outlook is revised from Positive to Stable.
The upgrade primarily reflects:
--UH's dominant market position as the only public provider of community college, undergraduate, and graduate education within the state of Hawaii (the state, general obligation debt rated 'AA' by Fitch);
--Its integral role in assisting the state's achievement of economic, education, research, and workforce development goals, which has led to fairly consistent and significant levels of operating and capital support even during times of financial weakness;
--Healthy enrollment trends supported by a diversity of program and degree offerings;
--Sound levels of balance sheet liquidity, supported by a track record of break-even to positive operating performance and conservatively managed investments, and a very low debt burden;
--Stable to increasing levels of sponsored research resulting from UH's unique location, which supports a strong position in environmental and agricultural sciences, and its collaborative, interdisciplinary approach to research in general; and
--A strengthened fundraising culture which has enabled UH to exceed the goals outlined in its current comprehensive capital campaign.
Principal credit concerns continue to center upon:
--UH's revenue concentration, with state appropriations representing a disproportionately high 43-45% of total revenues annually;
--Material weakening in the state's finances which could potentially lead to appropriation reductions far in excess of UH's historical experience during stressed economic times; and
--Ongoing capital needs stemming from UH's size and operating scope, an increasing portion of which may now need to be financed on UH's credit rather than the state's.
Proceeds of the series 2009A university revenue bonds will fund approximately $85 million of capital projects across the UH system and refund approximately $13.3 million of outstanding series 1995 bonds (not rated by Fitch).
University revenue bonds are secured primarily by net revenues of UH's auxiliary network, including revenues derived from housing, parking, and bookstore operations. University revenue bonds are also secured by a subordinate pledge on legislative appropriations. Legislative appropriations include moneys in any revolving or special funds appropriated to UH by the state and could include user taxes and fees, including student fees, facilities usage fees, and tuition.
University bonds, which were issued to finance costs associated with the school of medicine, are payable from a first lien on legislative appropriations and a portion of monies on deposit in the Hawaii Tobacco Settlement Fund. It is UH's practice to pay university bond debt service from tobacco settlement fund receipts.
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.
Contacts:
Fitch Ratings, New York
Douglas J. Kilcommons, +1-212-908-0740
Eric
Kim, +1-212-908-0527
Sandro Scenga, +1-212-908-0278 (Media
Relations)
sandro.scenga@fitchratings.com