Rating Action: Moody's revises University of Washington's (WA) outlook to stable, assigns Aaa to series 2021 General Revenue BondsGlobal Credit Research - 29 Jan 2021New York, January 29, 2021 -- Moody's Investors Service has revised University of Washington's (UW) outlook to stable from negative and assigned a Aaa rating to its proposed $325 million bonds, including $81 million in General Revenue and Refunding Bonds, series 2021A, and $244 million General Revenue and Refunding Bonds, Series 2021B (Taxable). We have also affirmed the university's Aaa issuer rating, the Aaa on its $1.9 billion General Revenue bonds, including the Aaa on General Revenue Refunding Bonds, 2020C (Delayed Delivery Bonds) in the amount of $118 million, the Aa1 on $312 million Lease Revenue Bonds, and the P-1 on UW's $250 million commercial paper program supported by its own liquidity.RATINGS RATIONALEThe revision in the outlook to stable reflects our expectations that the financial performance of the university's hospitals in fiscal 2021 and 2022 will stabilize and potentially improve thereby presenting less of a risk to the university's consolidated financial performance. Favorably, the university's operating cash flow margin remained sound at around 9% in fiscal 2020 and year to date results for the healthcare enterprise indicate likely improvements in financial results given higher patient admissions. In addition, the strong growth in the university's total cash and investments and a moderation in its debt burden underpin the revision to stable.The affirmation and assignment of the Aaa ratings to the University of Washington reflects the synergies and strengths of its large-scale research, healthcare, and educational operations that support its excellent strategic positioning. As the state's flagship university with a comprehensive array of programs, the university benefits from strong student demand. Its market position is bolstered by a prominent research profile enhanced by its sizeable academic medical center. Overall wealth levels are considerable and growing supported by strong fundraising. UW governance and management are strong, including integrated planning and very active oversight.The university's operating performance remains exposed to the volatility of its healthcare enterprises compounded by the ongoing challenges related to the coronavirus pandemic. A large and growing pension liability, and comparatively modest liquidity are other offsetting credit considerations.The affirmation of the Aa1 rating on the Lease Revenue bonds reflects the university's general credit quality along with a lease structure for the transaction with no abatement risk, including a ground lease for privately-owned property and a facilities lease with a sole purpose corporation.The P-1 short-term rating is based on the university's long term credit strength, excellent debt and treasury management, and ample university self-liquidity for maturing commercial paper.RATING OUTLOOKThe rating outlook is stable incorporating expectations that the operating cashflow margin will return to above 8% post-covid, incorporating UW Medicine's improving results, particularly given the consolidation of Northwest Hospital and program to unify and streamline administrative and operating systems. The outlook is also underpinned by expectations that continued growth in reserves will remain in line with peers and additional borrowing will remain moderate.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Sustained weakening of operating performance, or revenue pressures on major revenue streams such as patient care, state funding, or research funding- Material debt plans beyond those outlined- For the short term rating, reduction in same day liquidity, increased calls on liquidity, or weakening of debt and treasury managementLEGAL SECURITYSecurity of the General Revenue Bonds and the General Revenue Notes are General Revenues, including all non-appropriated and non-restricted revenues and fund balances, with $3.8 billion of pledged general revenues and $1.4 billion of general revenue balances. There is no debt service coverage covenant, no debt service reserve fund, and no additional bonds test.The Lease Revenue Bonds are secured by lease payments made by University of Washington solely from its General Revenues under a facilities lease between UW and the borrower for the bonds. Lease payments are not subject to appropriation or abatement. There is no debt service reserve fund for any bond series.USE OF PROCEEDSProceeds from the 2021 General Revenue Bonds will be used for a current refunding of series 2010A and advance taxable refunding of series 2012A, and $82 million for new capital projects (which includes retirement of $25 million of commercial paper) and to pay issuance costs.PROFILEFounded in 1861, University of Washington is the State of Washington's flagship university with fall 2020 enrollment of 60,829 students on its campuses in Seattle, Tacoma and Bothell. UW's operations are sizable with $6.4 billion of operating revenues in fiscal 2020. UW is also one of the nation's largest research universities with $1.6 billion of research awards for fiscal 2020. UW operates UW Medicine that includes the 810-bed two campus facility comprising the UWMC Montlake Campus and the UWMC Northwest Campus along with other related entities and the School of Medicine. UW Medicine's service area is broad as the only academic health system and Level 1 trauma care provider for Washington, Wyoming, Alaska, Montana and Idaho (WWAMI).METHODOLOGY The principal methodology used in these long term ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. The principal methodology used in these short term ratings was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. 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