Rating Action: Moody's downgrades University of North Carolina at Asheville, NC's issuer and revenue bond ratings to A2 from A1; outlook revised to stable from negativeGlobal Credit Research - 20 Jan 2022New York, January 20, 2022 -- Moody's Investors Service has downgraded the University of North Carolina at Asheville, NC's issuer, general revenue, and system pool revenue bond ratings to A2 from A1. The revenue bonds were issued by the Board of Governors of the University of North Carolina. The university had $76 million in total debt outstanding as of June 30, 2021. The outlook has been revised to stable from negative.Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907541232 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.RATINGS RATIONALEThe downgrade of the issuer and revenue bonds to A2 reflects the University of North Carolina at Asheville's (UNCA) gradual weakening of strategic position as reflected in declining enrollment and net tuition revenue. A nearly 15% reduction in enrollment since fall 2017 combined with tuition pricing restraints will continue to limit net tuition revenue growth. The university has outlined plans to stabilize incoming first year student classes, strengthen undergraduate retention, and launch new graduate academic programs. These initiatives could improve the university's market position over time, although the university confronts a highly competitive environment and success is unproven. Pre-pandemic operating performance and debt service coverage was weakening, but both have improved near term by one time federal relief funding and increased recurring state support. The sustainability of improved operating performance will in part be dependent on the successful implementation of student market initiatives.The A2 ratings favorably incorporate the strong and increasing annual support received from the State of North Carolina (Aaa stable) that partially offset student-related revenue declines. State funding should bolster operating performance as the university works to implement its strategic enrollment initiatives. Although the university's wealth and liquidity increased in fiscal 2021 due in part to government pandemic relief funding, UNCA's total cash and investments and unrestricted liquidity remain relatively low compared to peers. Debt levels are currently moderate and capital investment is supported by favorable state capital support.Moody's makes no distinction between the university's issuer and revenue bond ratings due to the relatively broad pool of available funds identified for repayment, although we note that student tuition payments are excluded along with state appropriations.RATING OUTLOOKThe stable outlook reflects UNCA's growing state funding that will allow the university to stabilize overall operating performance over the next one to two years as it continues to implement initiatives to grow enrollment.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Successful execution of market strategies driving incremental enrollment growth including improved retention rates and sustained growing net tuition revenue- Sustained improvement in operating performance and material growth in financial reserves, including unrestricted liquidityFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Weakening of annual operating performance, including either declining financial support received from the State of North Carolina or further declines in tuition or auxiliary revenues- Inability to stabilize enrollment through improved retention and successful implementation of revised recruiting strategies- Reductions in already low liquidity relative to operating expenses- Material increase in leverage absent improvement in operating performance and reservesLEGAL SECURITYThe general revenue and system pool revenue bonds are unsecured obligations of the university, payable from Available Funds, which include unrestricted revenues and unrestricted fund balances, but exclude state appropriations or student tuition payments. In fiscal 2021, Available Funds summed to nearly $39 million, which has remained relatively flat since fiscal 2016. However, this amount is adjusted for GASB-based pension and OPEB liabilities amounting to a combined nearly $108 million in fiscal 2021.PROFILEThe University of North Carolina at Asheville (UNCA) is a small public university located in Asheville, NC. The university serves as the designated liberal arts university within the University of North Carolina System. In fiscal 2021, the university generated operating revenue of $91 million and enrolled 3,010 full-time equivalent (FTE) students as of fall 2021.METHODOLOGYThe principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESThe List of Affected Credit Ratings announced here are all solicited credit ratings. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907541232 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:- Rating Solicitation- Issuer Participation- Participation: Access to Management- Participation: Access to Internal Documents- Disclosure to Rated Entity- EndorsementFor 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. 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