Bonds

University of Washington’s outlook revised to negative by Moody’s

The University of Washington’s outlook was revised to negative from stable by Moody’s Investors Service and its Aaa issuer rating affirmed ahead of its plans to issue tax-exempt revenue bonds next week.

The negative outlook “was driven by the university’s thinning operating performance that reflects both expense pressures in the university’s own operations as well as the weak performance of the university’s academic medical center,” Moody’s analysts wrote in a report Friday. The outlook also “incorporates the relatively more narrow liquidity and wealth compared to the size of its operations.”

Lead manager BofA Securities on Feb. 8 will price $221.2 million in general revenue bonds and possibly refund $69 million in general revenue bonds through a tender offer.

The Montlake campus of University of Washington Medical Center-Montlake. The weak performance of the university’s academic medical center was cited by Moody’s as a factor in revising the outlook to negative.

University of Washington

Piper Sandler is the financial advisor, and Pacifica Law Group is bond counsel.

The bond proceeds will be used to finance new capital projects, retire commercial paper, potentially tender series 2021B and 2022B and pay the cost of issuance.

Ahead of the deal, S&P Global ratings affirmed its AA-plus rating of the university’s revenue bonds. The outlook remains stable.

Moody’s affirmed the university’s Aaa issuer and general revenue bond ratings, the Aa1 rating on lease revenue bonds and the P-1 on UW’s commercial paper program.

The affirmation of the Aa1 rating on the lease revenue bonds “reflects the university’s general credit quality along with a lease structure for the transaction with no abatement risk, including a ground lease for privately owned property and a facilities lease with a sole purpose corporation,” the rating agency said.

Moody’s also cited the complexity of the lease structure and less essential nature of the projects in the lease revenue rating.

Total debt outstanding as of June 30, 2023, was approximately $3.4 billion, according to analysts.

The affirmation of the Aaa issuer rating “incorporates the synergies and strengths of its large-scale research, healthcare, and educational operations that support its excellent brand and strategic positioning,” Moody’s analysts said.

“As the state’s flagship university with a comprehensive array of programs, the university benefits from strong student demand,” Moody’s said. “Overall wealth levels are considerable and growing, supported by strong fundraising, but lag Aaa-rated peers when measured against the university’s growing scale.”

It experienced 6.3% enrollment growth between 2019-2023, according to the university’s online road show.

Moody’s said UW’s primary credit challenge “continues to be its exposure to the volatility and thin margins of its healthcare enterprise.” It also has relatively high leverage, including a large pension liability.

Founded in 1861, the university is the largest of six state-funded universities in the state. The university has 60,000 full-time students enrolled in its undergraduate, graduate and professional programs across its three campuses in Seattle, Tacoma and Bothell for fall semester, according to an online road show.

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