Rating Action: Moody’s assigns Aa1 to Virginia Polytechnic Inst. & State Univ.’s (VA) Series 2021; outlook stable
Global Credit Research – 06 Jan 2021
New York, January 06, 2021 — Moody’s Investors Service has assigned a Aa1 rating to Virginia Polytechnic Institute and State University, VA’s (Virginia Tech) planned approximately $35 million General Revenue Pledge Refunding Bonds, Series 2021 (Taxable). We maintain Aa1 ratings on the Series 2015 Revenue Bonds, consisting of the Series 2015A, 2015B, 2015C and 2015D bonds, with approximately $49.5 million outstanding. The outlook is stable.
RATINGS RATIONALE
The assignment of the Aa1 rating reflects Virginia Tech’s role as a comprehensive land-grant university, with a strong brand and reputation, and steady operating and capital support from the Commonwealth of Virginia (Aaa stable). The university benefits from its sizable $1.6 billion scope of operations, an established sponsored research presence and rising net tuition revenue. Further strength stems from Virginia Tech’s $1.9 billion in cash and investments inclusive of Virginia Tech Foundation assets. Solid enrollment growth continued for fall 2020 despite impacts of the coronavirus pandemic. Virginia Tech’s disciplined budget oversight is a favorable credit element and continues to be demonstrated by expense management due to revenue disruptions resulting from the coronavirus outbreak. The current fiscal 2021 budget shows a moderate deficit, but management is exploring additional offsetting actions and additional federal relief may also provide a mitigant.
Offsetting considerations include lower operating cash flow margins and liquid reserves relative to Aa1-rated peers and a sizable net pension liability. Another credit consideration is Virginia Tech’s strategic plan to develop an Innovation Campus in Northern Virginia, driven in part by Amazon.com, Inc.’s second headquarters development underway in the region. Over time, this campus is likely to be credit positive for the university, but there are near term execution risks to meet program development and facility needs, with high reliance on donor support and incremental state support, as well as elevated potential pressure on operating performance, liquidity and financial leverage.
RATING OUTLOOK
The stable outlook is based on the university’s continued student market strength, commonwealth support, consistent operating performance with 10-12% cash flow margins, and financial reserves growth. It also incorporates expectations of successful execution of its Innovation Campus and planned student growth with limited reserve use. Future debt capacity at the current rating will depend on several factors including operating cash flow margin prospects and liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
– Material increase in overall wealth and liquid reserves relative to debt and operations
– Continued strengthening of strategic position reflected in increasing scale and diversification of operations, along with expansion of brand and donor support
– Sustained stronger operating performance
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
– Inability to execute identified strategic initiatives leading to higher than planned borrowing or use of reserves
– Weakening of operating performance beyond fiscal 2021 or reduction in already modest liquidity compared to peers
– Marked changes in state or foundation support
LEGAL SECURITY
The general revenue pledge bonds are secured by and payable from the general revenues of the university, including, without limitation, total gross university unrestricted endowment income, tuition and fees, indirect cost recoveries, auxiliary enterprise revenues, general and non-general fund appropriations and other revenues not required by law to be used for another purpose. As additional security, the previously issued and still outstanding Series 2015A, 2015B, 2015C and 2015D bonds are supported by revenue pledges from the corresponding dormitory and dining system, athletic facilities system, utility system and student services system.
USE OF PROCEEDS
Proceeds of the Series 2021 bonds will be used to refund certain outstanding 9(d) Virginia College Building Authority (VCBA) Educational Facilities Revenue Bonds, fund capitalized interest on the Series 2021 bonds and certain other outstanding debt of the university and pay costs of issuance.
PROFILE
Virginia Tech is the Commonwealth of Virginia’s comprehensive public land grant university, with its main campus in Blacksburg and five satellite campuses, including in the Washington, DC metropolitan area, and two overseas locations. Academic programming is offered through nine colleges. For fiscal 2020, the university recorded operating revenue of $1.6 billion and in fall 2020 enrolled 35,546 full-time equivalent (FTE) students.
METHODOLOGY
The principal methodology used in this rating was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Mary Cooney Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Susan Fitzgerald Additional Contact Higher Education JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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