NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns an 'AA' rating to the following series of general revenue bonds issued by The University of Oklahoma Board of Regents on behalf of The University of Oklahoma Health Sciences Center (OUHSC or the university):
-- $21.35 million series 2010A;
-- $11.05 million series 2010B (federally taxable).
The bonds are expected to sell via negotiation on or about April 13, 2010.
In addition, Fitch affirms the 'AA' rating on approximately $71.1 million of outstanding OUHSC general revenue bonds.
The Rating Outlook is Stable.
-- The University of Oklahoma Health Sciences Center's (OUHSC, or the university) significant balance sheet resources provide a cushion to manage potential volatility in patient care revenues, an important source of funding for OUSHC, and unexpected increases in expenditures.
-- A sound reputation in clinical and basic research enables OUHSC to consistently secure a generally stable share of federal funds; this reputation partially mitigates the impact of a potentially stagnating or declining federal budget for research.
-- While the state of Oklahoma's (the state; general revenue bonds rated 'AA+' by Fitch) weakened economy continues to pressure OUHSC's receipt of annual operating appropriations, this revenue stream contributes significantly less to the operating budget than it does for other public universities, including several within the state.
-- OUHSC's historically conservative use of financial leverage, a function of strong capital support from the state, provides the university ample debt capacity at the current rating level to finance the current projects as well as address additional capital needs, none of which are significant over the near to intermediate term.
KEY RATING DRIVERS:
-- Favorable reimbursement environment for clinical care activity within the state yields stability in operating performance and balance sheet resources.
-- The role as the state's primary source of medical education and training for physicians and other allied health professionals is unchanged.
-- Mutually beneficial relationship with OU Physicians, the state's largest physicians group operated by the university, and HCA Health Services of Oklahoma, the for-profit enterprise which owns the hospitals comprising OU Medical Center continues.
Revenue financing system debt, including the series 2010A and series 2010B bonds, is secured by a broad pledge of all legally available revenues, excluding state appropriations and donor restricted funds.
The 'AA' rating reflects OUHSC's generally solid annual operating performance and balance sheet liquidity; its role as the state's academic medical center coupled with the broad geographic reach of its employed physicians group; a strong and growing reputation in basic and clinical research, enjoying stable federal support; diversity of revenues, which shelters the university's credit profile from material deterioration in any one funding stream; and extremely manageable debt levels, a function of the state's long willingness to fund projects and initiatives on OUHSC's behalf.
Credit concerns center principally upon the volatility of health care related revenues, including the potential for adverse changes in patient care funding; the potential, albeit remote, for material declines in federal research sponsorship; and the capital and technology intensive nature of OUHSC's operations necessitating on-going investment and reinvestment in facilities and infrastructure overtime.
OUHSC's principal funding streams, including net patient care revenues (36.8% of fiscal 2009 operating revenues) generated from professional practice plans, research grants and contracts (30.6%), and state appropriations (14.4%), have generally increased over the past five fiscal years. Consequently, in most years during this time period, OUHSC has generated a surplus, with the operating margin in fiscal 2009 equaling 1.1%. Results in both fiscal 2009 and fiscal 2008 were down considerably from prior fiscal years due primarily to the university's adoption of GASB 45 (fiscal 2008) and its recognition of an expense related to post employment benefits. For fiscal 2010, management expects OUHSC's operating performance to mirror fiscal 2009 results, with an expected 4% reduction in fiscal 2010 state appropriations for operations to be more than offset by the profitability of OUHSC's physicians group and growth in sponsored research. In general, Fitch expects public universities to generate at least a break-even level of performance.
The university's balance sheet liquidity provides a significant financial cushion to handle unexpected reductions in revenues or a sudden increase in expenditures. For fiscal 2009, available funds, or cash and investments that are not permanently restricted, equaled $329.1 million, representing 45.8% of operating expenses and 224.6% of pro forma leverage (including the bonds). As none of OUHSC's available funds are held in alternative asset classes, such as hedge funds and private equity, the university does not face any of the illiquidity or valuation issues that typically accompany these investments. Certain affiliated entities, including the OU Foundation, which manage resources for the long term benefit of the university, are modestly exposed to alternative asset classes. However, such monies are excluded from the computation of available funds.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:
'Revenue-Supported Rating Criteria', dated Dec. 29, 2009.
'Rating Criteria for Colleges and Universities', dated Dec. 29, 2009.
Additional information is available at 'www.fitchratings.com'.
Cindy Stoller, +1-212-908-0526 (New York)
Douglas J. Kilcommons, +1-212-908-0740 (New York)
Carolyn Tain, +1-415-732-7576 (San Francisco)
KEYWORDS: United States North America New York Oklahoma
INDUSTRY KEYWORDS: Education University Health Hospitals Professional Services Finance