Fitch Ratings announced Thursday that bonds issued by the University of California have been rated AA+.
The UC Board of Regents has issued $1.7 billion of AA+ bonds with a stable rating outlook to be sold by negotiation the week of Feb. 25. Fitch cites the university’s exceptional reputation and successful fiscal management as primary reasons for the bonds’ high rating.
“This is really a stamp of approval on what we’ve accomplished,” said UC spokesperson Dianne Klein.
This recent evaluation follows a trend of consistent AA+ ratings given by the credit rating agency Fitch Ratings for UC bonds.
Fitch’s report expresses confidence in the continuing strength of the UC system’s reputation and states that strong student demand and highly selective admissions have continued despite recent increases in student charges.
The report further suggests that successful strategic initiatives undertaken by the UC administration are expected to yield positive fiscal results, partially mitigating concerns over negative operating results and steep declines in funding.
“What we can really see is that the UC financial team is doing the right things,” Klein said. “Fitch has recognized their careful management of the university’s liabilities and debt-restructuring plans.”
Fitch anticipates that results of this successful financial management will be seen in the 2013 fiscal year but suggests that this process is likely to be slow.
In addition to these positive indicators, Fitch has stated that it regards the university’s diverse revenue base as a favorable credit factor. Decreasing reliance on state funding has provided a measure of safety against future cuts.
According to Fitch’s report, state funding in the 2012 fiscal year constituted 9 percent of UC revenues, down from 16 percent in 2008.
Fitch’s report also notes that the UC system is in a stronger fiscal position since the passing of Proposition 30, which has prevented further state funding cuts from higher education and provided the UC system with a $125 million injection.
While the majority of Fitch’s report focuses on the university’s successful fiscal planning, it also indicates a few areas that the university will have to address if it expects to maintain its AA+ rating.
The bonds’ AA+ rating is primarily contingent on the UC system stemming the operating losses that have resulted from a gap in the university’s budget — an issue that the UC system is currently seeking to address.
“While we assume that we are going to be in a better position (in 2013), there will still be a gap of $150 million between what we have and what we need,” Klein said.
Klein adds that despite ongoing budgetary difficulties, the UC system has issued the bonds during a period of historically low interest rates, a measure that could save the university millions of dollars.
Contact Tasha Osborne at [email protected].