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Tennessee State School Bond Authority, TN -- Moody's assigns enhanced Aa1 to Tennessee State School Bond Authority's (TN) 2021 Series A; outlook stable

·15 min read

Rating Action: Moody's assigns enhanced Aa1 to Tennessee State School Bond Authority's (TN) 2021 Series A; outlook stableGlobal Credit Research - 01 Feb 2021New York, February 01, 2021 -- Moody's Investors Service has assigned an enhanced Aa1 rating to the Tennessee State School Bond Authority's (TSSBA) (TN) proposed approximately $716 million Higher Educational Facilities Second Program Bonds, 2021 Refunding Series A (Federally Taxable). The proposed bonds will be fixed rate, maturing in 2045. We maintain Aa1 enhanced ratings on the authority's higher educational facilities second program bonds, currently outstanding in the amount of approximately $1.56 billion. The outlook for the enhanced rating is stable, reflecting the programmatic rating outlook which currently mirrors the outlook of the State of Tennessee (Aaa stable).RATINGS RATIONALEThe assignment of the Aa1 enhanced rating with a stable outlook incorporates the program-level Aa1 rating and stable outlook of the Tennessee State School Bond Authority Higher Education Intercept Program, which is notched off of the State of Tennessee's Aaa general obligation rating, as well as financing-level attributes related to sufficiency of the financing structure. The Aa1 rating for the financing-level rating is the same as the Aa1 programmatic rating due to the debt service coverage of interceptable revenues in excess of 100%, sufficient timing of state aid payments relative to debt service payments, and the presence of a paying agent in the debt payment structure. We regard this as a key strength related to governance considerations under our ESG framework.Two "institutions" participate in the TSSBA Higher Education Intercept Program - the Tennessee Board of Regents System (TBR) and the University of Tennessee System (UT) - and the state appropriations for each institution are available to bondholders for debt service if the institution does not make debt service payments to the bond trustee on a timely basis. There is no cross utilization of TBR and UT appropriations to meet debt service shortfalls.Should there by an insufficiency for debt service, pursuant to financing agreements between the Tennessee State School Bond Authority and TBR and UT, the state commissioner of finance and administration will deduct from state appropriations to the institutions an amount sufficient to make an upcoming debt service payment. Pursuant to a procedural memo signed by the secretary of the authority and the state commissioner of finance and administration, the authority will notify the state commissioner of finance and administration no later than five days prior to the debt service payment date that it is requesting an intercept of the state appropriations, and the state must remit the intercepted revenues to the authority within one business day of notification.RATING OUTLOOKThe stable outlook on the enhanced rating reflects the outlook for the programmatic level rating which currently mirrors the outlook for the State of Tennessee.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Change in the intercept program allowing limitless interceptable funds from the state for debt service- Guarantee of state on par with general obligation bondsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Downgrade of the state or programmatic intercept rating- Reduction in debt service coverage by interceptable funds- Observation that the program does not function as contemplatedLEGAL SECURITYThe Second Program Higher Education Bonds are special obligations of the TSSBA backed by the gross revenue pledge of the participating institutions (TBR and UT), as well as the TSSBA intercept program. Student fees and charges for the institutions are pledged to bond and note holders under separate supplemental financing agreements with each institution. UT's fiscal 2021 appropriations total $637.2 million, covering annual debt service prior to the planned 2021 Series A bonds refunding by 7.8x. TBR's fiscal 2021 appropriations total $904.2 million, covering annual debt service prior to the planned 2021 Series A bonds refunding by 11.3x.There are no First Program Bonds outstanding and the authority can no longer issue bonds under the First Program Resolution.The bond resolution does include a provision to hold a debt service reserve fund, but this is not mandatory. The authority does not currently hold any debt service reserve funds, nor does it plan to for the proposed 2021 Series A bonds.USE OF PROCEEDSProceeds of the 2021 Series A will be used to: (1) refund all or portions of the 2012A, 2012C, 2013A, 2014A, 2014B and 2015B bonds; fund a capital project at the UT Health Science Center; and pay costs of issuance.PROFILEThe Tennessee State School Bond Authority is a government agency and instrumentality of the State of Tennessee that was established in 1965 to manage and oversee the financing of capital projects for the state's public higher education institutions.TBR includes six universities, 13 community colleges and 27 technology centers, with an overall fall 2020 full-time equivalent (FTE) enrollment of 128,907 students and a fiscal 2020 budget of $3.32 billion.UT includes four universities (including the state's land grant university) and three institutes, with an overall fall 2020 FTE of 52,559 students and fiscal 2020 budget of $2.5 billion.METHODOLOGYThe principal methodology used in this rating was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. 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. 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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is 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.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. 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 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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