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Northampton County General Purpose Auth., PA -- Moody's assigns Aa3 to Lafayette College, PA's Series 2020; outlook stable

Rating Action: Moody's assigns Aa3 to Lafayette College, PA's Series 2020; outlook stable

Global Credit Research - 01 Sep 2020

New York, September 01, 2020 -- Moody's Investors Service has assigned a Aa3 rating to Lafayette College, PA's approximately $61.8 million of College Refunding Revenue Bonds, Series 2020 (Lafayette College) (Federally Taxable). The proposed bonds will be issued by the Northampton County General Purpose Authority, with a final maturity in 2050. We maintain Aa3 and Aa3/VMIG 1 ratings on approximately $254 million of the college's outstanding rated debt. The outlook is stable.

RATINGS RATIONALE

Lafayette College's Aa3 rating reflects its excellent strategic positioning as a selective undergraduate liberal arts and engineering college located within 80 miles of New York City and Philadelphia. Excellent operating performance and favorable donor support continue, supporting robust liquidity. Growth in net tuition per student as well as overall enrollment highlight the college's healthy student demand and pricing power. Offsetting credit challenges are elevated financial leverage relative to the college's smaller size and moderately heavy reliance on student charge revenue in a highly competitive student market. In addition, cash and investment growth has weakened to approximately half that of Aa3-rated peers, reflecting a period of capital investment as well as slightly weaker investment returns relative to peers. Over time, slower cash and investment growth relative to peers could negatively impact credit quality, particularly if debt increases.

The coronavirus outbreak and deteriorating global economic outlook are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG framework. Favorably, Lafayette was able to adjust expenses to decreased revenue in fiscal 2020 to deliver a balanced to slightly surplus operating performance. The college has multiple budget scenarios for fiscal 2021 that detail additional cost saving measures that can be taken as needed, resulting in a balanced budget to moderate deficits. Fall 2020 courses will be held online, with a small number of students living on campus. With almost $1 billion in financial reserves, Lafayette is well-positioned to withstand near-term enrollment or financial volatility.

Short-term VMIG 1 ratings incorporate the credit quality of TD Bank, N.A., and US Bank, N.A., the terms of the standby bond purchase agreements, and Moody's assessment of the likelihood of an early termination of each liquidity facility without a mandatory purchase of the bonds. The agreements cover the full principal amount of the bonds outstanding, plus the amount of interest that can accrue between interest payment dates. Documented procedures direct the appropriate parties to provide notices and draw upon liquidity facilities in a timely manner. The SBPAs with TD Bank for the Series 2010 and Series 2006 bonds expire in April 2021 and December 2021, respectively, and the SBPA with US Bank for the Series 2003 bonds expires in December 2022. Events that would cause termination of the liquidity facilities without a mandatory purchase of the bonds are directly related to the credit quality of the college. Accordingly, the likelihood of any such event occurring is reflected in the long-term rating assigned to the bonds.

RATING OUTLOOK

The stable outlook reflects expectations of continued excellent liquidity and manageable financial impacts from the coronavirus pandemic as well as no increase in financial leverage without offsetting financial reserve and revenue increases. The outlook is also predicated on the college's ability to achieve wealth growth in line with peers.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Significantly increased financial resources and enhanced revenue diversity, particularly through gifts

- Further strengthening of cash flow to support moderately high debt, or decreased financial leverage relative to operations and peers

- Short-term ratings: not applicable

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Weaker debt service coverage or stress on the student market, particularly stagnant net tuition revenue

- Increased financial leverage without offsetting growth in financial resources or operating performance

- Short-term ratings: downgrade of the college's long-term bond ratings or the counterparty risk assessment of the liquidity facility providers

LEGAL SECURITY

Rated debt is an unsecured general obligation of the college.

USE OF PROCEEDS

Proceeds will be used to refund outstanding Series 2010B, Series 2013A and 2013B bonds and to pay the costs of issuance.

PROFILE

Lafayette College is a private undergraduate college offering liberal arts and engineer programs and located in Easton, Pennsylvania, within 80 miles of both Philadelphia and New York City. The college enrolled over 2,640 students in fall 2019 and had operating revenue of $183 million for fiscal 2019.

METHODOLOGY

The principal methodology used in this rating 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.

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.

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.

Susan Shaffer 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 Dennis Gephardt 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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