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U.Va.’s 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.

“It’s 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.

Standard & 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.

The 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.

“The 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.”

The 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.

All $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.

“We don’t borrow that often and when we do, we’re a quality brand on the market,” Reynolds said.

S&P’s 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.

The 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.

Of 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.

The 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.

The 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.

Facing 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.

Ironically, 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.

In 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.

“U.Va. 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 funding.”

Contact: Charlotte Crystal, (434) 924-6858

FOR ADDITIONAL INFORMATION: Contact the Office of University Relations at (434) 924-7116. Television reporters should contact the TV News Office at (434) 924-7550.

SOURCE: U.Va. News Services

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