Fitch Ratings affirms the 'AA-' rating on $1.024 billion in outstanding
University of Connecticut (UConn) general obligation (GO) bonds at 'AA-'.
The Rating Outlook remains Negative.
The bonds are general obligations of UConn, additionally secured by a
pledge of and lien on a State of Connecticut debt service commitment for
principal and interest, appropriated from the state's general fund
without further legislative approval. The bonds are not general
obligations of the state, and its full faith and credit are not pledged.
KEY RATING DRIVERS
RATING LINKED TO STATE: UConn's GO bonds are rated one notch below the
GO bond rating of the State of Connecticut based on the state's debt
service commitment equal to principal and interest and appropriated
without further legislative approval. Higher education is a
constitutional state priority, and legal protections are strong.
STATE'S NEGATIVE OUTLOOK BASED ON FISCAL VULNERABILITY: The Negative
Outlook reflects the state's reduced fiscal flexibility at a time of
lingering economic and revenue uncertainty. The adopted budget for the
current biennium relied on one-time items and anticipated little
near-term progress in rebuilding fiscal flexibility. Personal income tax
(PIT) revenues have been volatile in the first year of the biennium,
with the state taking proactive action to ensure a modest fiscal 2014
budgetary surplus to be deposited to the rainy day fund.
HIGH WEALTH LEVELS: Connecticut is the nation's wealthiest state as
measured by per capita personal income. Economic recovery has been slow
and uneven since the recession, and the state's large and important
finance sector continues to weaken.
CYCLICAL REVENUES AND SPENDING PRESSURE: State revenue performance is
cyclical, while high fixed costs limit its ability to respond during
HISTORICAL WILLINGNESS TO BUILD BALANCES: During past economic
recoveries the state has demonstrated a willingness and ability to
rapidly repay deficit borrowing and rebuild its rainy day balance. The
slow recovery has hampered rebuilding of reserves in the current
HIGH DEBT: Tax-supported debt is high for a U.S. state. Most state GO
bonds, excluding state GO bonds issued to fund the teachers' retirement
system, amortize rapidly.
SIGNIFICANT STATE PENSION OBLIGATIONS: Unfunded liabilities for
employees are significant, including for state employee and teacher
pensions. The state fully funds actuarially calculated pension
contributions and maintains a fixed amortization date. Additionally, the
state has taken steps to reform retirement pension and health
RATING LINKED TO STATE CREDIT QUALITY: The rating is sensitive to
changes in the state's GO bond rating, to which this rating is linked.
The UConn GO bonds are issued by and carry the GO pledge of UConn, but
their security and the 'AA-' rating rest wit the debt service
commitment of the state. Principal and interest are paid annually from
the state's general fund, appropriated and obligated for payment by the
State Treasurer without requiring further legislative approval. Fitch
rates the state's own GO bonds 'AA' with a Negative Outlook. State
general fund obligations, with the strength of continuing
appropriations, are seen as slightly less well secured, and the UConn
bonds fall within this category. The state's debt service commitment is
separate from the operating appropriations and allotments that the state
makes available to the university.
Over the last two decades, the state has prioritized renewal and
expansion of facilities at UConn, the state's flagship public
university. The UConn GO bonds have been issued as part of the state's
UConn 2000 program, first enacted in 1995 and recently extended through
2024. Under the most recent extension, the program's total authorized
amount has risen to $4.6 billion over the 1995-2024 period, of which
$4.3 billion will be UConn GO bonds benefitting from the state's debt
service commitment. Of this amount, more than $1.9 billion in debt
service commitment bonds have been issued for university capital
projects to date, with just over $1 billion outstanding.
The latest extension, titled 'Next Generation Connecticut,' was
authorized by the state in 2013 as part of a university effort to expand
UConn research facilities and faculty, particularly in science and
technology fields. The majority of UConn 2000 funded projects have been
at the main UConn campus in Storrs, with additional projects at other
UConn campuses and the UConn Health Center in Farmington.
For further information on the State of Connecticut, please see Fitch's
press release dated May 16, 2014, 'Fitch Rates $650MM Connecticut GO
Refunding Bonds 'AA'; Outlook Remains Negative,' at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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