University of Kansas, KS -- Moody's assigns Aa2 to University of Kansas' (KS) proposed Series 2021D; outlook stable

Rating Action: Moody's assigns Aa2 to University of Kansas' (KS) proposed Series 2021D; outlook stableGlobal Credit Research - 06 Apr 2021New York, April 06, 2021 -- Moody's Investors Service has assigned a Aa2 rating to University of Kansas' (KS) proposed $67 million of Refunding Revenue Bonds, Series 2021D (University of Kansas Projects) to be issued through the Kansas Development Finance Authority. The bonds have an expected final maturity in 2038. Moody's also maintains a Aa2 issuer rating and Aa2 and A1 ratings on various series of outstanding bonds. As of June 30, 2020, the university had about $667 million of rated debt. The outlook is stable.RATINGS RATIONALEAssignment of University of Kansas' Aa2 rating and maintenance of its Aa2 and A1 ratings reflect its strong national brand, substantial scale, and close strategic ties to the State of Kansas. Its excellent strategic positioning as a flagship public university serving about 25,000 full-time equivalent students will continue to support longer-term enrollment stability and generous donor support. Further, substantial absolute wealth with total cash and investments topping $2.4 billion supports strong spendable cash and investments' coverage of both debt and expenses at 2.6x and 1.4x, respectively. Prospects for maintaining operating stability are supported by the university's large $1.35 billion revenue base and excellent revenue diversity. Through effective budget management, we expect the university to maintain operating cash flow margins in the 8-11% range for fiscal 2021 and longer-term operating performance stability. Management reports that enrollment is expected to be stable for fall 2021. Credit challenges include heightened student market headwinds, narrow operating performance, and continued business disruption caused by the coronavirus pandemic.RATING OUTLOOKThe stable outlook reflects our expectations that KU will maintain balanced financial operations, strong financial reserve coverage of debt and expenses, and around 100 monthly days cash on hand.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING- Meaningful strengthening of the university's strategic positioning, evidenced in student demand, research growth, and fundraising- Outsized growth in liquidity and wealth, further strengthening coverage of debt and operationsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING- Deterioration in operating performance or debt affordability- Material decline in monthly days cash on hand- Marked reduction in state financial supportLEGAL SECURITYThe university's general revenue bonds (Aa2 stable), including the proposed Series 2021D, are on parity and secured by a general pledge of all university revenues, excluding certain restricted revenue. For fiscal 2020, pledged revenues amounted to $811 million, or more than one-half of Moody's adjusted operating revenue. There is no debt service reserve fund.The Series 2016 Lease Development Revenue Bonds (Aa2 stable) are secured by a loan agreement between the issuing authority and KU Campus Development Corporation (KUCDC), a nonprofit corporation controlled by the university. The university leased a portion of its campus designated for the project to KUCDC, which sublet the property back to the university for base rent equal to debt service. Base rental payments under the sublease are an unsecured obligation of the university, payable only from revenues of the university, excluding restricted revenues and state appropriated funds. The sublease is not subject to abatement.The 2014E bonds (Aa2 stable) are unconditional obligations of the University of Kansas Center for Research, Inc., with a secured interest in its unrestricted gross revenue. In the event pledged revenues are insufficient to pay debt service, the university has covenanted to make unrestricted revenue available. For fiscal 2020, net pledged revenue of the Center for Research amounted to $20.7 million, which provided 18.8x coverage of maximum annual debt service.The Series 2016C KU Medical Center Parking Facilities bonds (A1 stable) are secured by a pledge of gross revenue from parking facilities located on the Medical Center campus in Kansas City. KU covenants to adjust fees as needed to generate at least 1.15x debt service coverage. For fiscal 2020, the facilities generated $6.6 million of net revenue providing 2.35x annual debt service coverage. There is a $2.9 million cash funded debt service reserve fund.USE OF PROCEEDSProceeds from the proposed 2021D bonds will be used to refund the outstanding Series 2011C and Series 2013G-1 bonds to achieve economic savings. Savings will be taken on a level basis and there will be no extension to the final maturity of the bonds.PROFILEUniversity of Kansas (KU), the state's flagship university, is a comprehensive, research intensive university, offering a broad array of academic programs to more than 28,000 (head count) students at its main campus in Lawrence; medical center campuses in Kansas City, Wichita, and Salina; and in the greater Kansas City area at the Edwards Campus in Overland Park. KU is a member of the Big 12 Conference.METHODOLOGYThe 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 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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