Ohio State University Senior Secured General Receipts Bond #AA#, #AA/A-1+# Ratings AffirmedStocks and Financial Services Press Releases Friday March 17, 2017 09:03
NEW YORK (S&P Global Ratings) March 16, 2017--S&P Global Ratings affirmed its 'AA' long-term rating, and, where applicable, its 'AA/A-1+' dual rating on various series of tax-exempt and taxable (senior secured) general receipts bonds issued by and for the Ohio State University (OSU).
The 'A-1+' short-term rating component of the dual rated bonds reflects our opinion of the liquidity provided directly by OSU. In addition, we affirmed our 'AA-' long-term rating on OSU's $337.96 million series 2013A tax-exempt special-purpose general receipts bonds. The outlook is stable for all rated issues.
These rating actions affect approximately $3.3 billion of outstanding general receipts (including senior-lien obligations and special-purpose general receipts obligations) bonds as of June 30, 2016. "The 'AA' long-term ratings reflect our view of OSU's extremely strong enterprise profile and very strong financial profile, which leads to an initial indicative stand-alone credit profile rating of 'aa+'," said S&P Global Ratings credit analyst Ken Rodgers.
However, a higher-than-average debt burden and lower available resources to debt ratios compared with medians for the rating category and peer comparisons led us to issue a final indicative stand-alone credit profile rating of 'aa' and final bond issue ratings of 'AA'.
The 'AA-' rating on the 2013A tax-exempt debt reflects our view of the bond's narrower security, which consists of a pledge of revenues from the university's student housing, dining, and recreational sports facilities.
The subordination arises because the revenues securing the series 2013A bonds constitutes part of the general receipts pledge and, therefore, OSU would first have to use these revenues to satisfy bonds secured by the general receipts pledge, if needed, before using them to satisfy the obligation of the special-purpose general receipts bonds.
We understand in fiscal 2016 the pledged revenue backing these bonds totaled $172.0 million and produced debt service coverage of 6.9x on maximum annual debt service (MADS) of $25.1 million. OSU's extremely strong enterprise profile recognizes its role as the state's flagship university of the state's higher educational system that consists of 14 public universities.
Total fall 2016 FTE enrollment for all of OSU's campuses is 60,701--a 1.5% enrollment increase compared with the prior year. "OSU operates under an excellent common governance and management structure for all campuses with multiple levels of oversight," said Mr. Rodgers, "and also reflected in the enterprise profile are OSU's superior economic fundamentals operating in a state that has a GDP per capita slightly behind the U.S. that, nevertheless, has maintained S&P Global's second-highest rating for more than two decades." OSU's financial profile reflects our view of its excellent financial management policies; healthy financial performance; and a slightly elevated, but sound, debt burden with reasonable available resources in relationship to its debt.
The university's long-term capital plan from 2010 to 2015 totaled $2.03 billion and incorporated $1.6 billion of debt issuance with about $1.5 billion of debt actually issued over that period. The largest component of the prior long-term capital plan was the $1.1 billion medical center expansion that began in 2010 and was fully operational in 2015. At fiscal year-end 2016, the university had authorization for projects totaling $1.12 billion, the largest component of which involved 168 projects under construction at that time totaling $718.1 million.
Securing the majority of the university's debt is a pledge of and first lien on its gross general receipts, which include tuition, fees, and other student charges; hospital sales and services and auxiliary enterprise revenues; faculty practice revenues; and unrestricted government grants and contracts.
"The stable outlook reflects our expectation that OSU will continue to have a favorable enrollment trend, produce positive adjusted operating margins on a full-accrual basis, and minimize additional debt issuance while focusing on further strengthening its available resources," added Mr. Rodgers. The outlook also assumes health care patient utilization and related operations will remain sound, resulting in continued positive financial performance on a full-accrual basis.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information.
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