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Fitch Rates Univ. of Colorado's Revs 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA+' rating to the following series of bonds issued by the Regents of the University of Colorado (CU).

-- $93.7 million university enterprise revenue bonds, series 2012B;

-- $37.1 million university enterprise refunding revenue bonds, series 2012A-3.

The fixed-rate bonds are expected to sell via negotiation as early as the week of October 8. Proceeds of the series 2012B bonds will be used to finance various capital improvement projects at CU's Boulder, Colorado Springs, Denver, and Anschutz Medical Center campuses; fund capitalized interest; and pay costs of issuance. Series 2012A-3 bond proceeds will be used to refund outstanding debt.

In addition, Fitch has affirmed the 'AA+' rating on CU's $1.24 billion of outstanding university enterprise revenue bonds.

The Rating Outlook is Stable.

SECURITY

University enterprise revenue bonds are a special limited obligation secured by and payable from the net revenues of the university.

KEY RATING DRIVERS

STABLE CREDIT CHARACTERISTICS: The 'AA+' rating reflects CU's track record of breakeven to positive operations, fueled by enrollment growth and fairly diverse revenues; manageable debt burden; solid level of balance sheet resources; and significant fundraising ability.

FAVORABLE DEMAND TRENDS: Steady, modest enrollment growth over the past several years stems from CU's prominent position as the flagship institution for higher education and research in the state of Colorado (general obligation bonds not rated by Fitch).

MANAGEABLE DEBT LEVELS: The university maintains a moderately low pro forma debt burden, with debt periodically issued to fund capital needs offset by resources available for its repayment. Historically, net revenues pledged to university enterprise revenue bonds have provided solid coverage of associated debt service.

DECLINING STATE SUPPORT: CU's limited reliance on the state for operating support partly mitigates concerns over ongoing, albeit reduced, funding cuts. CU's seasoned leadership team has considerable experience managing the university's operational and capital needs during periods of constrained state funding.

CREDIT PROFILE

CU's fairly diverse revenue base continues to drive its track record of breakeven to positive operations. As calculated by Fitch, CU's operating margin was a sound 3% in fiscal 2011, and averaged 2.1% over the prior five fiscal years. Enrollment growth and tuition increases; rising healthcare revenues from patient volume growth and a favorable reimbursement environment; and growing research activities contribute to CU's sound operating profile. Based on unaudited results for fiscal 2012, CU's operating performance was close to the prior year's outcome, producing a 2.4% operating margin.

In fiscal 2012, the largest revenue source remained tuition, fees and auxiliary revenues (35.3%), followed closely by grants and contracts (31.2%), then health service revenues (17.9%). CU's percentage of revenues derived from state support (4.1%) is among the lowest of all Fitch-rated public colleges and universities, partially mitigating the impact of recent general appropriation reductions. Fitch notes that a small portion of tuition and fee revenue is derived from the state through its college opportunity fund in lieu of general appropriation funding to the university.

State support to CU declined by about $72 million from fiscal years 2009-2011, while improving slightly in fiscal 2012 as state revenues slowly improved and some previous cuts were restored. While state support represents a minimal portion of the university's operating budget, management took steps to offset the loss in funding by raising tuition and fees and reducing and/or eliminating various administrative costs. Receipt of federal stimulus monies also helped offset state cuts through fiscal 2011. State funding to CU was cut a modest $4.8 million for fiscal 2013, which based on the above-mentioned budget measures, Fitch views as manageable and is not expected to adversely impact the university's operating performance. Moreover, the university's larger funding sources (student-generated revenues, grants and contracts, and health services) continue to provide operating stability.

CU's solid balance sheet liquidity is characterized by its available funds (cash and investments not permanently restricted) which totaled $1.49 billion as of June 30, 2011, up from $1.42 billion as of June 30, 2010. Available funds covered fiscal 2011 operating expenses ($2.54 billion) and pro forma debt (about $1.36 billion) by 58.9% and 110.3%, respectively. Based on preliminary fiscal 2012 results, Fitch does not anticipate much fluctuation in these liquidity metrics. In addition, CU benefits from the support of various 501c(3) organizations. As of May 31, 2012, the long-term investment pool of the University of Colorado Foundation, the largest of CU's related foundations, had a market value of $922 million.

CU's debt burden is manageable despite a gradual increase in financial leverage over the past few years, Pro forma maximum annual debt service (MADS) of about $125 million (fiscal 2013) represents a moderate 4.6% of fiscal 2012 unaudited operating revenues. Fitch continues to recognize the strength of the revenues pledged to CU's enterprise revenue bonds, which include a broad mix of auxiliary receipts, indirect cost recovery revenues, student fees, a small portion of tuition revenue, and other self-funded and research related services. On an unaudited basis, pledged revenues totaled $283.5 million in fiscal 2012, up from $272.3 million in fiscal 2011, and cover pro-forma MADS by a healthy 2.27x.

CU's near-term capital plans remain manageable. In addition to the series 2012B projects, the university intends to construct a new science building at its main Boulder campus for an estimated cost of $100 million, of which up to $50 million may be debt-financed, and potentially finance a student housing facility at its Colorado Springs campus. These projects are anticipated over the next one to two years. CU's management team maintains prudent capital planning practices and its ability to align capital spending with available resources is assumed in the rating.

Created in 1861, CU is a comprehensive graduate research university and the largest institution of higher education in Colorado. In addition to its main campus in Boulder, the university has campuses in Colorado Springs and Denver, as well as a medical school campus in Aurora. Fall 2011 headcount enrollment totaled 57,739, with 45,038 full-time equivalent students, an increase of 8.7% and 8.1%, respectively, since fall 2007. Based on preliminary data, the fall 2012 headcount remained nearly flat with the fall 2011 level at 57,592 students.

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' (June 12, 2012);

'U.S. College and University Rating Criteria' (May 24, 2012);

'University of Colorado' (May 25, 2012);

'Fitch Rates University of Colorado's $90MM 2012A-2 Revs 'AA+' (May 23, 2012).

Applicable Criteria and Related Research:

University of Colorado
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679436

U.S. College and University Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679152

Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681015

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Fitch, Inc.
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Source: Fitch Ratings