Rating Action: Moody's assigns first-time Ba2 rating to Noorda College of Osteopathic Medicine, LLC's Taxable Educational Facilities Revenue Bonds Series 2021A and Series 2021B issued through the Public Finance Authority; outlook stableGlobal Credit Research - 10 Feb 2021Approximately $127 million of debt securities affectedNew York, February 10, 2021 -- Moody's Investors Service, ("Moody's") has assigned a first-time Ba2 rating to Noorda College of Osteopathic Medicine, LLC's (Noorda COM) $48 million Taxable Educational Facilities Revenue Bonds (Noorda College of Osteopathic Medicine Project) Series 2021A and $78.6 million Taxable Educational Facilities Revenue Bonds (Noorda College of Osteopathic Medicine Project) Series 2021B issued by the Public Finance Authority. The outlook is stable.Bond proceeds will be used to design, build, construct and furnish a new four story academic building, finance initial working capital requirements, fund the indenture required reserve accounts, fund capitalized interest until August 1, 2024, and pay issuance costs.Noorda College of Osteopathic Medicine, LLC ("Noorda COM") is the obligor for the bonds and was formed in March 2017 in the City of Provo, Utah with a mission to provide a critically needed solution to acute physician shortages in Utah and the contiguous Rocky Mountain States' region, including Montana, Wyoming, South Dakota, and North Dakota.RATINGS RATIONALEThe Ba2 rating reflects Noorda COM's strong revenue generating potential and cashflow predictability owing to the limited number of MD (Doctor of Medicine) and DO (Doctor of Osteopathic Medicine) school spots in the US despite a materially outsized demand. This view has been already substantiated by the high number of applications received to date that currently exceed 13x the size of the fall 2021 inaugural class. This strong demand is forecast to continue, and the competitive tuition rates assumed support a relatively high degree of cashflow predictability with strong resiliency as annual debt service coverage ratios should exceed 3.0x in most reasonable sensitivities. Further, the high need for doctors in Utah today will only increase as Utah only has two medical schools, has the lowest ratio of primary care physicians to population of any US state, and is the 3rd fastest growing state in the US by population. These factors, coupled with an aging population that will lead to more doctors retiring but also an increased demand for healthcare services, create a gap in healthcare providers in Utah, which already exists in many regions today. Noorda COM helps provide one solution to this rising social risk within the state, helping to establish its market position over time. While providing key social benefits, Noorda COM also has the social risk associated with private ownership coupled with the fact that the majority of medical students will graduate with a large amount of student loan debt outstanding. This social risk under Moody's environmental, social and governance (ESG) framework may expose Noorda COM to regulatory changes compared to a not-for-profit or public institution. Yet the social benefit the school provides is likely to temper the negative impact of any new regulatory change.The rating is constrained by Noorda COM's early stage operations and its current pre-accreditation status as well as low liquidity compared to a more established higher education institution. The rating is further constrained by Noorda COM's limited scale ($50 million in operating revenues in 2027 in the base case) and revenue concentration that is almost entirely tuition dependent. We believe full accreditation is likely to be obtained by year-end 2025 as planned given no DO school that has reached pre-accreditation stage has ever failed to achieve full accreditation status to date. Further, Noorda COM has a sound plan that it is progressing on to meet, and in some cases exceed, the accreditation standards. The Dean leading the efforts has experience accrediting new DO schools for the American Osteopathic Association's (AOA) Commission on Osteopathic College Accreditation (COCA) and has a deep understanding of their requirements as well. The strong experience and local connections of both the Dean and the Board of Trustees provides a sound governance foundation on which to build which should lead to both accreditation and overall sound operating performance. From a liquidity perspective, while there are covenanted required working capital liquidity levels and additional reserve funds, the majority of excess cashflows are distributed to the private owners, limiting the potential for a liquidity cushion to emerge to address any material event over the long-term.The rating benefits from relatively strong ring fencing provisions that support good governance, including the single special purpose nature of Noorda COM LLC, limitations on any material new amount of debt while the initial loans are outstanding, a covenant not to merge or consolidate with another entity, a clear separation of accounts from the ultimate equity owners and an Independent Manager in place to block any bankruptcy filings. The rating acknowledges the sound project financing protections as well, including third party trusteed funds via an established cashflow waterfall; a cash funded six-month debt service reserve fund; a renewal and replacement reserve fund and about 90 days cash on hand per Moody's calculation; capitalized interest covers all debt service until August 1, 2024 with no ability to distribute excess cashflow until after the Teach Out and Operating Reserves have been released, a 1.30x DSCR has been achieved and all indenture required reserve funds have been funded; and security in all key assets, documents and accounts. Favorably, when the COCA required Teach Out and Operating Reserves are released, they will early redeem debt which deleverages Noorda COM to the more manageable level in 2026 and all debt is repaid by 2045 despite the school's in perpetuity status.RATING OUTLOOKThe stable outlook reflects our view that the high demand for the inaugural fall class and the advance preparations by Noorda COM will help support the launch of the new osteopathic medical school. The outlook also reflects our expectation that Noorda COM will continue to progress to successfully satisfy the COCA accreditation requirements to receive full accreditation by year-end 2025 as required. The outlook also incorporates our expectation that construction of the new main campus facility will progress relatively on time and on budget.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFACTORS THAT COULD LEAD TO AN UPGRADE** Receipt of full accreditation without conditions or qualifications** Establishment of a sound market position with a consistent demand base and pricing power leading to DSCRs over 4.0x and faster than forecast deleveraging** Strong working relationships with regional partners and the state** Material improvement in required level of balance sheet liquidity at Noorda COM levelFACTORS THAT COULD LEAD TO A DOWNGRADE** Any indication that accreditation is at risk of not being received by the end of December 2025** Tighter margins owing to the inability to charge tuition increases or higher than expected expenses that result in DSCRs below 2.0x on a consistent basis** Liquidity declines below required levels** Inability to establish the school's stable or niche market position over timeThe principal methodology used in these ratings was Generic Project Finance Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1194215. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.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_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. John Medina VP - Senior Credit Officer Project Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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