Kennesaw State University, GA -- Moody's assigns A1 to University System of Georgia project at Kennesaw State University (GA); outlook stable
Rating Action: Moody's assigns A1 to University System of Georgia project at Kennesaw State University (GA); outlook stable
Global Credit Research - 13 Aug 2020
New York, August 13, 2020 -- Moody's Investors Service has assigned an A1 rating to the Board of Regents of The University System of Georgia's (USG) (GA) proposed $8.9 million Lease Revenue Bonds (KSU Howell Hall Real Estate Foundation, LLC Project), Tax-Exempt Series 2020C. The bonds will be issued through the Cobb County Development Authority, GA, and will be fixed rate, maturing in 2052. Concurrently, we have affirmed the A1 ratings on approximately $204 million of Kennesaw State UniversitY, GA's (KSU) outstanding rated revenue bonds. We have also affirmed the A1 ratings on the previously rated, but not yet issued, planned $15 million Lease Revenue Refunding Bonds (KSU Sports and Recreation Park Real Estate Foundation, LLC Project), Recovery Zone Series 2020A and $2.3 million Lease Revenue Bonds (KSU Sports and Recreation Park Real Estate Foundation, LLC Project) Federally Taxable Series 2020B. Since the March 11, 2020 press release, the Series 2020A and 2020B bonds were upsized due to changes in market conditions and funding to an R&R fund, maturity dates are 2044 for both series and the description of the Series 2020A bonds changed to add Recovery Zone in the bond name. The outlook is stable.
RATINGS RATIONALE
The assignment and affirmation of the A1 ratings primarily reflect the strength of the University System of Georgia, its management and oversight of its component units and the lease structure used for financing projects. It also incorporates the system's wealth and healthy reserves as well as the underlying credit strength of the various colleges, universities and lease-financed projects, including Kennesaw State University. USG's excellent strategic positioning incorporates strong fiscal oversight that favorably positions KSU and other system universities' ability to limit adverse financial impacts due to the COVID-19 pandemic for fiscal 2020 and into fiscal 2021. While the expected cash flows to support debt service for the various projects remain tied to particular projects, the system's obligation to make payments under its annually renewable rental agreement, once renewed, is a broad general obligation not limited to any one project or university.
USG is the dominant provider of public higher education in the Aaa-rated State of Georgia. The system's favorable tuition pricing, enrollment growth and diverse revenue sources will continue to support sound debt service coverage. While financial leverage for some colleges is high, overall financial leverage is manageable, and USG's future borrowing plans are limited. Credit challenges include thin unrestricted liquidity relative to a large expense base, growing retirement benefit obligations and ongoing capital needs.
The ratings incorporate the annual renewal and abatement risk associated with the lease obligations supporting the bonds. The A1 lease revenue ratings reflect the relative essentiality of the financed assets at the various system members.
We regard the coronavirus outbreak as a social risk under our ESG framework given substantial implications for public health and safety. The prospects and path of economic recovery for the second half of the year and beyond will depend on factors including when and at what pace lockdown measures will ease and to what extent fiscal and monetary policy measures are available to assist businesses and organizations.
RATING OUTLOOK
The stable outlook for the system reflects our expectations that USG has sufficient resiliency to adjust expenses and weather near-term operating challenges posed by the coronavirus outbreak, including the expectation that the majority of operating divisions, including Kennesaw State University, will service their respective Public Private Venture (PPV) debt without extraordinary support by the system. It also incorporates USG's ongoing commitment to overseeing and managing the PPV program while maintaining stable operating performance and sizeable financial reserves. Should downside risks accelerate, the rating or outlook could be negatively impacted.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Substantial increase in unrestricted liquidity and sustained improvement in operating performance
- Material improvement in credit health of various participating colleges
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Realization of more material downside risks associated with the coronavirus pandemic, driving both heightened revenue pressure and a weakened balance sheet position
- Any indication of a lack of willingness to renew rental agreements
- Significant reduction in state support or erosion of unrestricted liquidity
- Weakened financial performance including decline in debt service coverage
LEGAL SECURITY
All of USG's rated Public Private Venture (PPV) capital lease obligations, including the proposed 2020C lease revenue bonds, are secured by rental revenue paid by the Board of Regents under the terms of annually renewable rental agreements on behalf of the various colleges and universities. The Board of Regents' obligation to make rental payments is an unsecured general obligation of the board, payable from all unrestricted revenue sources. The lease revenue bonds are subject to appropriation and abatement risk.
In addition to assessing the relative essentiality of each financed project to the system, Moody's considers USG's reliance on the PPV program. It currently has over $3 billion of PPV-related lease revenue bonds that predominantly support student life facilities. While the system has no legal obligation to renew any rental agreement, it has clear strategic interests in stewarding the PPV program. Our ratings incorporate the assumption that the system will take extraordinary steps to renew rental agreements, including agreements for projects whose fundamental business conditions may be weak and require additional support.
USE OF PROCEEDS
Proceeds of the Series 2020C lease revenue bonds will be used to renovate an existing student residence facility (Howell Hall), fund 15 months of capitalized interest and pay costs of issuance.
PROFILE
The University System of Georgia is an organizational unit of the State of Georgia. The USG includes 26 public colleges and universities and is the dominant provider of higher education in the state. Operating revenue totaled $8.5 billion in fiscal 2019. In the fall of 2019, the system enrolled 291,271 full-time equivalent (FTE) students.
Kennesaw State University (KSU) is a large comprehensive public university with campus locations in Kennesaw, Georgia, approximately 30 miles northwest of Atlanta, and Marietta, Georgia. In fiscal year 2019, Kennesaw recorded Moody's adjusted operating revenue of $514 million and for fall 2019 enrolled 33,757 full-time equivalent (FTE) students.
KSU Howell Hall Real Estate Foundation, LLC is a special purpose entity created to aid in the system's financing of the related project at Kennesaw State University. Its sole member is the Kennesaw State University Foundation, Inc., a Georgia nonprofit corporation.
METHODOLOGY
The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Mary Cooney Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Susan Fitzgerald Additional Contact Higher Education JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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