Rating Action: Moody’s assigns Aa2 to Iowa State University of Science and Technology’s (IA) academic building revenue refunding bonds; outlook stable

New York, July 23, 2020 — Moody’s Investors Service has assigned a Aa2 rating to Iowa State University of Science & Technology, IA’s (ISU) proposed $24.6 million Academic Building Revenue Refunding Bonds, Series I.S.U. 2020 (Iowa State University of Science and Technology), to be issued by the Board of Regents, State of Iowa with final maturity in August, 2035. We maintain the outstanding Aa2 and Aa3 ratings on approximately $530 million of debt under ISU’s various pledged revenue systems. The outlook is stable.

The assignment of Aa2 on the academic building revenue refunding is based on the university’s historically healthy student demand and large enrollment as the State of Iowa’s land grant university and member of the Big 12 athletic conference. The rating is also supported by the university’s excellent strategic positioning with a substantial and diverse research enterprise, consistently favorable operating performance, and growing wealth that provides strong coverage for debt and operations, cushioning against operating pressures. The university’s immediate credit challenge is managing operations through the coronavirus pandemic. Its longer-term credit challenge stems from recently softened enrollment growth within a highly competitive landscape. Limited enrollment growth could inhibit increases in tuition and fee revenues to levels that do not keep pace with expense growth. While the academic building revenue bonds benefit from a broad pledge and debt service reimbursement from the state, the university’s overall debt structure is moderately complex. Leverage is comprised of multiple debt securities with narrow revenue streams that are becoming a rising credit challenge as the university confronts pledged revenue disruptions due to the coronavirus outbreak.

ISU plans to hold in-class instruction in fall 2020 with a modified schedule and social distancing protocol in place. However, the persistent spread of the coronavirus outbreak poses potential further disruption. Additionally, the pandemic’s effect on a deteriorating global economic outlook is creating a severe and extensive credit shock across many sectors, regions and markets. The credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG framework.

The stable outlook incorporates our expectations of thinner but still balanced operating performance in fiscal 2020 due to the financial impact of the coronavirus outbreak. It also incorporates management’s credibility and track record of planning and adjusting to changing business conditions. The stable outlook incorporates current university plans that classes will resume on campus in the fall of 2020. However, if social distancing measures are prolonged, various revenue streams pledged to auxiliary facilities bonds, including the dormitory facilities system, could be materially weakened, which could drive either a rating or outlook change for the university’s various debt securities.

– Significant increases in cash and investments relative to peers with limited additional borrowing

– Material growth in liquid reserves (monthly days cash) to protect from the effects of any operating pressures

– Greater than anticipated downside pressure associated with the health crisis, driving both heightened revenue pressures and a weakened balance sheet position

Academic Building Revenue Bonds (ABR) are secured by a broad pledge of gross student tuition and charges, as well as other institutional income. The ABR bonds are also supported by a DSRF. ISU receives debt service reimbursement from the State for all ABR bonds, although the State has no legal obligation to provide this reimbursement and it is not pledged to bondholders.

USE OF PROCEEDS

Bond proceeds will refund the July 1, 2020 through July 1, 2035 maturities on the Series 2010 academic building revenue bonds.

PROFILE

Iowa State University of Science & Technology is a comprehensive public university located in Ames, IA (Aa1), established in 1858. The university has more than 32,000 full-time equivalent students, of which, 86% is comprised of its undergraduate class.

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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_1133569.

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.

Ceridwynne Lake 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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