bond rating upgraded to AAA by Standard & Poor’s
Three AAA Bond Ratings Put U.Va. In Financial Elite
April 3, 2003--
Standard & Poor’s recently upgraded the University
of Virginia to a triple-A debt rating, making U.Va. one of only
two public universities in the country — along with the University
of Texas — to hold the coveted ranking from all three of the
financial world’s major bond-rating agencies.
always a big accomplishment to be upgraded, but it’s especially
significant in this economic environment,” said Yoke San L.
Reynolds, U.Va. vice president for finance.
& Poor’s raised its rating from AA+ to AAA on the University’s
outstanding debt, joining Fitch Ratings and Moody’s Investors
Service in assessing the quality — and relative safety —
of an investment in U.Va. bonds as the best there is.
only other public university to hold the coveted triple-A ratings
from all three investment services is the University of Texas system.
And the University of Michigan is the only other public university
to be ranked triple-A by Moody’s. Only two private universities
have been rated triple-A by all three services, Dartmouth College
and Stanford University, although many private institutions have
sought ratings only from Moody’s and S&P, Reynolds said.
decisions of the rating agencies reflect an assessment of the entire
institution,” said Leonard W. Sandridge, executive vice president
and chief operating officer. “The performance of our staff,
the leadership of the president and the board, the quality of our
academic and health care programs, our endowment, the successful
capital campaign and the effectiveness of our financial and business
operations all contribute to the strength of the enterprise.”
University solicited the debt ratings, which were released in late
February, as it prepared to issue $200 million in bonds to cover
some of the costs of seven capital projects and refund existing,
more expensive debt. On March 5, Lehman Brothers led a consortium
of investment banks in selling $118 million of Series 2003B bonds
at maturities ranging from one to 30 years, and at annual interest
rates ranging from 1.05 to 4.71 percent.
$118 million of the U.Va. bonds sold in one day, Reynolds said,
thanks to the University’s reputation, good pricing and a
good marketing strategy on the part of the investment bankers. The
last time U.Va. went into the bond market was in 1999, making U.Va.
bonds a rare commodity.
don’t borrow that often and when we do, we’re a quality
brand on the market,” Reynolds said.
AAA rating covers not only the University’s existing debt,
but also the recent $118 million issue. The bonds will be repaid
through student tuition and fees, auxiliary revenues, such as parking
and bookstore sales, and unrestricted gifts.
seven capital projects include: an addition to the aquatic and fitness
center, renovation of the cancer center, expansion of the U.Va.
hospital, construction of a parking garage on Emmet Street, a research
building for the School of Medicine, a basketball arena and a dining
hall on Observatory Hill.
the bond proceeds, $85 million will be used to repurchase existing
debt for reissue at a lower interest rate, saving the University
about $700,00 a year in interest payments, or an expected total
of $7 million at present values, Reynolds said.
top bond ratings also will lower the University’s borrowing
costs later this year when it issues up to $100 million in commercial
paper to secure short-term, low-cost bridge financing for ongoing
capital projects, she said.
upgrade comes as the economic outlook for Virginia continues to
be cloudy, and further cutbacks in support for the state’s
institutions of higher education are possible.
dramatically lower tax revenues than anticipated in 2002, the state
cut its support for the University of Virginia by 25 percent in
the current academic year. This reduced state funding to $138 million,
or 9.4 percent of the University’s operating budget. For the
2003-04 academic year, the University expects an additional cut
of 7 percent, dropping total projected state support for the university
below 8 percent.
the bad news has its good side. Several of the measures taken by
the University to cope with lower state funding levels contributed
in many ways to the rating agencies’ positive assessment of
its financial condition.
particular, Standard & Poor’s analysts cited: strong demand
for the University’s academic programs, a national reputation
for excellence in academics and research, a strong record of fund
raising, a large endowment, historically good investment performance,
solid financial management and improved financial performance at
the Medical Center.
has always had fairly strong leadership,” said John Fargnoli,
a director with Standard & Poor’s public finance division.
“The upgrade was due largely to the school’s strong
reputation and the improvement in its finances and increase in research
Charlotte Crystal, (434) 924-6858