Rating Action: Moody's assigns Aa2 to University of Hawaii's Series 2017A-G bonds; outlook stable

News Release from Moody’s Global Credit Research - 07 Dec 2017

New York, December 07, 2017 --

Issue: University Revenue Bonds Series 2017A; Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $4,310,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Issue: University Revenue Bonds Series 2017B (Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $10,120,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Issue: University Revenue Bonds Series 2017C (Taxable Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $4,115,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Issue: University Revenue Bonds Series 2017D (Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $11,050,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Issue: University Revenue Bonds Series 2017E (Taxable Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $4,455,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Issue: University Revenue Bonds Series 2017F (Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $52,350,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;Issue:

University Revenue Bonds Series 2017G (Taxable Refunding); Rating: Aa2; Rating Type: Underlying LT; Sale Amount: $20,825,000; Expected Sale Date: 12/14/2017; Rating Description: Revenue: Public University Broad Pledge;

Summary Rating Rationale

Moody's Investors Service has assigned Aa2 ratings to University of Hawaii's approximately $107 million of University Revenue Bonds Series 2017A through Series 2017G, to be issued through the Board of Regents of the University of Hawaii. We maintain a Aa2 issuer rating on the university and Aa2 ratings on outstanding debt. The outlook is stable.

UH's Aa2 rating reflects its essential role in the State of Hawaii (Aa1 stable) as the sole provider of public higher education and an economic driver within the state. The importance of this role is underscored by steady state operating and capital support. UH's rating also incorporates the university's large scale and scope of operations, with unique programming and research, and well-diversified revenues. The rating is tempered by significant expense pressures across the 10-campus system, declining enrollments, and extensive capital needs with a large backlog of deferred maintenance.

Rating Outlook

The stable outlook incorporates expectations of stabilized or slowly improving operating cash flow, with resumption of modest wealth growth.

Factors that Could Lead to an Upgrade

• Substantial growth of reserves relative to debt and operations
• Sustained and material improvement to operating cash flow

Factors that Could Lead to a Downgrade

• Reduction of state support, capital or funding of fringe benefit payments
• Weakening operating cash flow
• Deterioration of monthly liquidity

Legal Security

All university revenue bonds are secured by a first lien on the Network revenue, including System revenues consisting of various housing and auxiliary activities, a subordinate lien on Legislative Appropriations in special and revolving funds appropriated or allocated to the Board of Regents, the university, the System or the Network, to the extent permitted by law, which includes tuition and fees.

Fiscal 2017 system gross revenues of $102 million provided debt service coverage of 2.3 times. The special and revolving beginning funds balance is approximately $159 million for fiscal 2017.

Use of Proceeds

Proceeds of the bonds will be used to: provide funds to renovate the Gregg M. Sinclair Library basement; refund a portion of the University Bonds Refunding Series 2006A, and University Revenue Bonds, Series 2009A; and to pay costs of issuance.

Obligor Profile

The University of Hawaii is a large multi-campus system with three university campuses, seven community college campuses and nine educational centers distributed across six islands throughout the State. The scope and scale of the university is reflected in its $1.5 billion operating revenue and over 35,600 FTE students. The university has a strong and unique research profile, particularly in earth and marine sciences.

Methodology

The principal methodology used in this rating was Global Higher Education published in November 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Regulatory Disclosures

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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.