|[March 25, 2014]
Fitch Rates University of Connecticut's $201MM GO Bonds 'AA-'; Outlook Negative
NEW YORK --(Business Wire)--
Fitch Ratings assigns 'AA-' ratings to the following University of
Connecticut (UConn) general obligation (GO) bonds:
--$107 million GO bonds (2014 series A);
--$94 million GO bonds (2014 refunding series A).
The par amount for the refunding series may change upon final sale,
expected via negotiated sale on or about April 8.
In addition, Fitch affirms the following ratings:
--$920 million in outstanding UConn GO bonds at 'AA-'.
The Rating Outlook is Negative.
The bonds are general obligations of the University of Connecticut,
additionally secured by a pledge of and lien on a State of Connecticut
debt service commitment for principal and interest, appropriated from
the state's general fund without further legislative approval. The bonds
are not general obligations of the state, and its full faith and credit
are not pledged.
KEY RATING DRIVERS
RATING LINKED TO STATE: UConn's GO bonds are rated one notch below the
GO bond rating of the State of Connecticut (the state) based on the
state's debt service commitment equal to principal and interest and
appropriated without further legislative approval. Higher education is a
constitutional state priority, and legal protections are strong.
STATE'S NEGATIVE OUTLOOK BASED ON (News - Alert) FISCAL VULNERABILITY: The Negative
Outlook reflects the state's reduced fiscal flexibility at a time of
lingering economic and revenue uncertainty. The adopted budget for the
current biennium relied on one-time items and anticipated little
near-term progress in rebuilding fiscal flexibility. Recent revenue
momentum, if it continues, may allow the state to materially improve its
HIGH WEALTH LEVELS: Connecticut is the nation's wealthiest state as
measured by per capita personal income. Economic recovery has been slow
and uneven since the recession, and the state's large and important
finance sector continues to weaken.
CYCLICAL REVENUES AND SPENDING PRESSURE: State revenue performance is
cyclical, while high fixed costs limit its ability to respond during
HISTORICAL WILLINGNESS TO BUILD BALANCES: During past economic
recoveries the state has demonstrated a willingness and ability to
rapidly repay deficit borrowing and rebuild its rainy day balance. The
current slow recovery has hampered rebuilding of reserves in the current
HIGH DEBT: Tax-supported debt is high for a U.S. state. Most state GO
bonds, excluding state GO bonds issued to fund the teachers' retirement
system, amortize rapidly.
SIGNIFICANT PENSION OBLIGATIONS: Unfunded liabilities for employees are
significant, including for state employee and teacher pensions. The
state fully funds actuarially calculated pension contributions and
maintains a fixed amortization date. Additionally, the state has taken
steps to reform retirement pension and health liabilities.
RATING LINKED TO STATE CREDIT QUALITY: The rating is sensitive to
changes n the state's GO bond rating, to which this rating is linked.
The UConn GO bonds are issued by and carry the GO pledge of UConn, but
their security rests with the debt service commitment of the state.
Principal and interest are paid annually from the state's general fund,
appropriated and obligated for payment by the State Treasurer without
requiring further legislative approval. Fitch rates the state's own GO
bonds 'AA' with a Negative Outlook. State general fund obligations, with
the strength of continuing appropriations, are seen as slightly less
well secured, and the UConn bonds fall within this category. The state's
debt service commitment is separate from the operating appropriations
and allotments that the state makes available to the university.
Over the last two decades, the state has prioritized renewal and
expansion of facilities at UConn, the state's flagship public
university. The UConn GO bonds have been issued as part of the state's
UConn 2000 program, first enacted in 1995 and recently extended through
2024. Under the most recent extension, the program's total authorized
amount has risen to $4.6 billion over the 1995-2024 period, of which
$4.3 billion will be UConn GO bonds benefitting from the state's debt
service commitment. Of this amount, more than $1.8 billion in debt
service commitment bonds have been issued for university capital
projects to date, with $919.9 million outstanding.
The latest extension was authorized by the state as part of a university
effort to expand UConn research facilities and faculty, particularly in
science and technology fields. The majority of UConn 2000 funded
projects have been at the main UConn campus in Storrs, with additional
projects at other UConn campuses and the UConn Health Center.
For further information on the State of Connecticut, please see Fitch's
press release dated March 4, 2014, 'Fitch Rates $400MM Connecticut GO
Bonds 'AA'; Outlook Negative,' at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from IHS (News - Alert) Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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