Fitch Rates Vanderbilt University's (TN) Rfdg Revs 'AA+'; Outlook Stable
Fitch Ratings assigns an 'AA+' rating to the following series of bonds issued by the Nashville & Davidson County Metropolitan Government Health & Educational Facilities Board on behalf of Vanderbilt University (Vanderbilt):
--$100.2 million revenue refunding bonds, series 2012D;
--$44.4 million revenue refunding bonds, series 2012E.
The bonds are expected to sell via negotiation the week of Nov. 12. Bond proceeds will be used to refund outstanding variable-rate demand bonds (VRDBs) and commercial paper (CP) notes. In addition, Fitch affirms Vanderbilt's various long- and short-term ratings as detailed at the end of this release.
The Rating Outlook is Stable.
Revenue bonds, CP, and taxable notes are a general obligation of the university, payable from all legally available funds.
KEY RATING DRIVERS
STABLE CREDIT CHARACTERISTICS: Vanderbilt's steady, positive operating results; substantial balance sheet resources; manageable debt burden and strong fundraising ability underpin the 'AA+' rating. Counterbalancing factors include revenue concentration in the health care sector and elevated competition as the university increasingly competes with top-tier universities nationwide.
STRONG DEMAND PROFILE: A strong reputation in academics, research and clinical patient care are the basis for the university's consistently strong student demand and highly selective admissions at both the undergraduate and graduate levels.
REVENUE CONCENTRATION: Healthcare services provided by Vanderbilt University Medical Center (VUMC), which is part of the university's primary reporting entity and consolidated within its audited financial statements, contribute two-thirds of total unrestricted operating revenues. Vanderbilt's limited funding diversity is partially mitigated by the consistently positive operating performance of VUMC's hospitals and clinics.
CAPABLE MANAGEMENT TEAM: Vanderbilt's stable, seasoned management team demonstrates prudent financial and facilities planning that has resulted in manageable future capital needs and a stable to declining debt burden.
RESOURCE SUFFICIENCY: The 'F1+' rating is based on Vanderbilt's ability to cover the maximum potential liquidity demands presented by its variable rate debt programs by at least 1.25 times (x) from internal resources. Such resources include cash, highly liquid, highly rated investments, and dedicated liquidity facilities.
Vanderbilt's strong financial profile is supported by substantial balance sheet resources. Available funds, defined as cash and investments not permanently restricted, totaled $3.72 billion as of June 30, 2012 and covered fiscal 2012 operating expenses ($3.51 billion) and debt ($1.56 billion) by a solid 106% and 239%, respectively. The university's steady operating performance provides further financial flexibility, generating a solid 4.3% operating margin in fiscal 2012 (including endowment distributions), exceeding the 2.8% average of the prior five fiscal years (2007-2011). Revenue derived from the operations of VUMC represents two-thirds of the university's total operations, reflecting its limited funding diversity. However, concern over this revenue concentration is partially mitigated by the continued growth and consistently strong operating performance of VUMC's hospitals and clinics.
Typical of similarly rated institutions, Vanderbilt utilized variable-rate debt and derivative instruments, in addition to bullet maturities for certain issues. Fitch believes the university maintains sufficient financial resources and management sophistication to address the risks attendant to these debt structures. Moreover, it has been shifting to a more conservative debt profile recently via refunding variable-rate debt and terminating certain interest rate hedges.
Vanderbilt's debt burden remains manageable. While maximum annual debt service (MADS; $382 million) represents a high 10.4% of fiscal 2012 revenues, it includes a $250 million bullet due in fiscal 2019 on the university's taxable series 2009A bonds. Amortizing this bullet payment over the life of the bonds, the debt burden is closer to 5%, which Fitch views as moderate. As indicated by its 'AA+' rating, Fitch expects Vanderbilt will maintain strong market access to manage large bullet maturities and mandatory tenders.
The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover potential maximum liquidity demands presented by Vanderbilt's outstanding VRDBs and CP notes. Of its substantial cash and investments, about $957.6 million, including cash, cash equivalents, and U.S. government and agency debt (after Fitch discounts based on maturity), was available on a same or next-day basis on Sept. 30, 2012. To supplement internal liquidity sources, the university maintains the ability to draw on dedicated lines of credit in the aggregate amount of $200 million.
On a combined basis, Vanderbilt's liquid assets totaled $1.16 billion and covered its liquidity needs of $796.3 million by a sound 1.45x. This includes $121.3 million of outstanding VRDBs (being refunded with the series 2012D bonds) and maximum CP authorization of $675 million ($264.2 million currently outstanding; $50 million to be refunded with the series 2012E bonds). To reduce potential demands on its liquidity, the university limits the amount of CP notes that can mature on a given day to $50 million. For an 'F1+' rating, Fitch typically expects coverage of at least 1.25x. Vanderbilt's procedures for handling a failed remarketing of VRDBs and/or rollover of CP are highly detailed and regularly updated, reflecting favorably on management.
Vanderbilt is a private comprehensive university and medical center located in Nashville, TN. The university consists of 10 schools and colleges, and the medical center consists of the School of Medicine, the School of Nursing, the Vanderbilt Medical Group and the hospitals and clinics. The university's fall 2012 freshman acceptance rate was an impressive 14.2%, with a solid 40% of accepted students choosing to enroll. Fall 2012 headcount of 12,710 represents a 7.3% increase since fall 2007.
Fitch affirms the following ratings:
--$569.1 million revenue bonds at 'AA+';
--$119.6 million VRDBs at 'AA+/F1+';
--$67 million floating rate notes (three-year put structure), series 2012A at 'AA+';
--$67 million floating rate notes (five-year put structure), series 2012B at 'AA+';
--$250 million taxable notes, series 2009A at 'AA+';
--$675 million taxable and tax-exempt CP program at 'F1+'.
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);
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity' (June 15, 2012);
--'Vanderbilt University, Tennessee' (March 13, 2012);
--'Fitch Rates Vanderbilt University's (TN) Series 2012 Rfdg Revs 'AA+'; Outlook Stable' (March 6, 2012).
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. College and University Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
Vanderbilt University, Tennessee
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