Moody’s Upgrades UW Bond Ratings

by Chris Malins

If you’ve ever tried to borrow money for a car or a house, you know how important your credit report is. UW also has a credit report of sorts, called a bond rating. The quality of this rating determines how flexible borrowing terms are when funds are needed for construction projects, but primarily a higher rating means lower cost of borrowing. Moody’s Investors Service, one of the “big two” rating agencies, recently upgraded the UW’s outstanding debt, as well as future debt.

Public universities are rated by nationally recognized rating agencies; Moody’s, Standard & Poor’s, and Fitch; both on the strength of a particular transaction and on the strength of the entire institution. The higher the rating, the lower the interest rates are on money that is borrowed and the more flexible the terms of the debt. Aaa is the highest rating any bonds can receive, while anything below BB is considered a “junk bond.” For complete information regarding Moody’s rating definitions see the following link:

http://www.bondtalk.com/global.cfm?S=rultra&SS=moodys#ltus

Moody’s recently visited the UW to review and rate our new borrowing platform, something that we call Non-Appropriated Local Funds or “NALF.” NALF is a pool of funds that will be used to pay back bonds for future research buildings. Just like any good bank, Moody’s wanted to better understand the fundamentals of the UW’s financial picture, from our current revenues to our reserves.

A small group of UW staff made the case for a high rating for NALF to Moody’s; Harlan Patterson, Doug Breckel, Scott Davies, Jeff Follman, and Chris Malins. The presentation was over two hours long, followed by a tour of the campus, and capped off with a delicious lunch at McMahon Eight. Needless to say, Moody’s was impressed.

With respect to the NALF platform, Moody’s gave UW an issuer rating of Aa1 for research debt. Aa1 is just one notch below the highest rating available, Aaa, and put UW in elite company. In 2002, only three public schools had an issuer rating of Aa1: UNC-Chapel Hill, Georgia Tech, and Texas A&M. UW is proud to be part of this group.

In addition to this issuer rating on future debt, Moody’s also upgraded outstanding auxiliary bonds; $51 million of Housing and Dining System Bonds to Aa2, from Aa3, and the University's $16.3 million of Intercollegiate Athletics (ICA) Revenue Bonds to Aa3, from A1. Although the upgrades on existing debt don’t impact the interest rate on those particular issues, they will impact any future debt that ICA or Housing and Dining may want to issue.

These recent upgrades have a direct impact on the cost of funds for bonds, but behind the rating are a lot of people working together who make UW a success. Moody’s noted the strength of the research enterprise, healthy reserves, and strong operating performance despite a difficult statewide funding environment.