Fitch Ratings assigns an 'AA' rating to approximately $170.64 million of revenue financing system (RFS) refunding and improvement bonds, series 2012 A and $27.68 million RFS refunding and improvement bonds, series 2012 B (taxable) issued by the Board of Regents of Texas Tech University System (TTUS, or the system).
The fixed rate series 2012 A and series 2012 B (taxable) bonds (together, the bonds) are expected to price via negotiated sale on or about Jan. 5. Proceeds of the series 2012 A & B bonds will be used to fund the construction and equipping of a new college of business administration building, the construction and equipping of a new residential housing and dining facilities, various athletic facility improvements, to refund certain outstanding RFS bonds, and to pay associated costs of issuance.
In addition, Fitch affirms the 'AA' rating $442.72 million of RFS refunding and improvement bonds issued by the Board of Regents of TTUS and affirms the 'F1+' rating on $150 million tax-exempt and taxable CP notes. The Rating Outlook on the long-term rating is revised to Positive from Stable.
SECURITY
RFS debt, including notes issued under the CP program, is secured by all available funds of the system.
KEY RATING DRIVERS
Resilient Financial Profile: The Positive Outlook reflects the system's ability to consistently improve its operating performance despite financial pressures impacting revenues as well as expenditures, adequate balance sheet resources and strong demand at all three campuses.
Growing Student Population: Increasing headcount enrollment levels at the system's three campuses ensure consistency in one of its main revenue streams (tuition and fees); expenses associated with this large, and still growing population are carefully managed.
Manageable Debt Burden: The system's conservatively structured and managed debt burden remains moderate following the issuance of the bonds, with fiscal 2011 net income available for debt service affording strong (4.0x) coverage of pro forma maximum annual debt service coverage.
Adequate Internal Liquidity: The system maintains significant highly liquid, highly rated cash and short-term securities to provide coverage of liquidity demands presented by its CP program by a minimum of 1.25x.
WHAT COULD TRIGGER A RATING ACTION
Continued Growth in Resource Base: Further growth in balance sheet resources, particularly vis-a-vis total operating expenses, could impact the rating positively.
Solidified Research Status: Success in meeting progressive benchmarks toward the ultimate goal of achieving 'Tier 1' status, and becoming a beneficiary of the National Research University Fund, could positively affect student demand and facilitate further diversification of revenues, thus creating upward rating pressure.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', dated June 20, 2011;
--'U.S. College and University Rating Criteria', dated July 14, 2011;
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity', dated June 20, 2011.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640830
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637129
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