News Column

Fitch Affirms University of Virginia's Short-Term Rating at 'F1+'

February 26, 2014

Fitch Ratings has affirmed its 'F1+' rating on the following debt issued by the Rector and Visitors of the University of Virginia (UVA):

--Approximately $78.6 million of outstanding series 2003A multi- modal general revenue pledge bonds;

--$300 million taxable and tax-exempt commercial paper (CP) program ($185.6 million currently outstanding).

SECURITY

The revenue bonds and CP are unsecured general obligations of UVA, payable from all legally available funds.

KEY RATING DRIVERS

FINANCIAL STRENGTH OF UVA: The university maintains a strong financial profile fueled by a diverse revenue base; substantial balance sheet resources; robust fundraising; and manageable debt burden. Fitch maintains a long-term 'AAA' rating on UVA's general revenue pledge bonds.

RESOURCE SUFFICIENCY: The 'F1+' rating is based on UVA's ability to cover the maximum potential liquidity demands presented by its variable rate debt programs by at least 1.25x from internal resources. Such resources include cash; highly liquid, highly rated investments; and dedicated liquidity facilities.

RATING SENSITIVITIES

FINANCIAL DETERIORATION: Erosion to UVA's internal resource base to the point where the university could no longer cover its variable- rate obligations by at least 1.25x, while highly unlikely, would put downward pressure on the short-term rating.

CREDIT PROFILE

Chartered in 1819, UVA is a highly selective, comprehensive public university located in Charlottesville, Virginia. The university's freshman acceptance rate was 30 percent, with a solid 41 percent of accepted students choosing to enroll. UVA's prestigious graduate programs, including the Darden School of Business, the McIntire School of Commerce and the School of Law maintain equal or higher admissions selectivity. Fall 2013 headcount enrollment totaled 21,238 students, up 1 percent from the prior year.

UVA's strong financial profile is characterized by consistently positive operations that are funded by a diverse operating budget; substantial balance sheet resources, with exceptional management of the long-term investment pool provided by University of Virginia Investment Management Company; impressive philanthropic activities, including a recent $3 billion fundraising campaign; and a manageable debt burden. UVA also benefits from the strong competitive and financial position of the University of Virginia Medical Center, a fully integrated division of the university which provides nearly half of total operating revenues.

LIQUID RESOURCES SUPPORT SHORT-TERM DEBT

The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover potential maximum liquidity demands presented by UVA's outstanding multi-modal general revenue pledge bonds and CP notes. To supplement internal liquidity sources, UVA maintains the ability to draw on three dedicated lines of credit in the aggregate amount of $250 million. Of the university's substantial cash and investments, approximately $1 billion, including U.S. government and agencies securities and investment grade corporate debt (after discounts based on maturity per Fitch's short-term rating criteria) was available on Dec. 31, 2013.

On a combined basis, UVA's liquid assets totaled $1.26 billion and covered its liquidity needs of $378.6 million by a healthy 3.32x. This includes $78.6 million of outstanding multi-modal revenue bonds (currently in CP mode) and its maximum CP authorization of $300 million. For an 'F1+' rating, Fitch typically expects coverage of at least 1.25x. To limit potential demands on its liquidity, UVA limits the amount of CP notes that can come due on a given day to $40 million. The university's detailed procedures for handling a failed remarketing of multi-modal bonds and/or rollover of CP are regularly reviewed, reflecting favorably on management.

Additional information is available at 'fitchratings.com'.

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