General revenue bonds finance the University’s core operations, such as research and instruction.
In its report, Moody’s cited the University’s strong financial performance, a renewed focus on operational efficiencies and the impact of a variety of new financial strategies that have had a material impact on improving UC costs.
“UC’s financial performance remains strong,” stated Moody’s, specifically citing UC’s “stable operating performance,” a balance sheet that is “healthy and improving further,” and the University’s continuing focus on “long-term strategic planning, accountability, [and] transparency.”
The credit rating agency also upgraded five of eight other UC ratings, including its pooled medical center revenue. UC’s five medical centers collectively represent the third-largest system of publicly owned hospitals in the nation. Other research facility and limited project revenue bonds were also upgraded.
These strong credit ratings enable the University to reduce costs by borrowing at lower interest rates and at more favorable terms.
“This upgrade reflects strong confidence in the University’s financial management,” said Katherine N. Lapp, UC executive vice president for business operations. “While UC is undergoing dramatic structural reforms in a variety of different areas, Moody’s recognizes it is doing so from a position of fundamental financial strength. The University has implemented a more strategic approach to its debt structure.”
Moody’s cited a number of other factors contributing to UC’s strong financial position. Among them:
The University’s current debt service remains at only 3.6% of its operating budget. Even in the face of growing borrowing needs, including $1 billion in projects already approved by the Board of Regents, Moody’s noted UC’s “prudent approach” to reviewing debt capacity, engaging external studies on debt capacity and treating debt capacity as an asset that should be deployed carefully.
“While we do expect debt levels to grow,” said the agency, “we believe the University can comfortably absorb its future debt and capital plans.”
In regard to state budget support, Moody’s noted that the University has made significant progress “in building consensus around University funding levels and the importance of the University System to the state’s economy.” It further observed that UC is in a good position to weather budget downturns because of its diversified mix of revenues and a demonstrated ability to grow financial resources through “improved performance, investment returns and philanthropy.”
The credit rating service also acknowledged the University’s “renewed focus” on operational efficiencies and other strategic initiatives that have helped to lower costs and strengthen overall financial performance.
Moody’s added that UC’s “premier position in teaching, research and clinical care, along with a clear role in the state’s higher education system as the research intensive institution” are also vital components to its credit strength.
For the full credit ratings report: www.universityofcalifornia.edu/news/2007/moodysupgrade1007.pdf
Top 10 Credit Ratings among Public Universities
University of Michigan (Aaa)
University of Texas (Aaa)
University of Virginia (Aaa)
University of California (Aa1)
Indiana University (Aa1)
Purdue University (Aa1)
Texas A & M University (Aa1)
University of North Carolina at Chapel Hill (Aa1)
University of Washington (Aa1)