On Monday, the University of California took its place as one of the highest-rated public institutions in the nation with respect to its credit rating.
Moody’s Investors Service, one of the nation’s foremost credit raters, raised the university’s credit rating from Aa2 to Aa1.
Credit ratings, which are highly important to financial markets, help lenders determine risk in offering loans; the higher the credit rating, the less investment risk associated with an institution.
Although both Aa1 and Aa2 ratings signify that a corporation or institution carries low risk for lenders, an Aa1 rating signifies slightly less risk than Aa2.
Therefore, with an increase in its credit rating, it will now be easier for the university to obtain loans at lower costs and on more favorable terms.
“The improved credit rating improves the ability of the university to finance its facilities better, and reduces the overall costs of these projects. That cost savings can be put to better academic and research functions and features within those facilities.” Trey Davis, a University of California Office of the President spokesman, said.
Moody’s cited many strengths of the UC system that allowed it to elevate the university’s credit rating, including its position as one of the nation’s top-tier university systems.
“Moody’s believes that the University of California’s premier position in teaching, research and clinical care, along with a clear role in the State’s higher education system as the research-intensive institution are vital components of its credit strength.” the credit-rating company said in a press release.
The company also cited the university’s expected growth over time, its “overall market, operational and balance sheet strength”, and its focus on “long-term strategic planning, accountability (and) transparency,” as reasons for the improved credit rating and positive outlook.
“This upgrade reflects strong confidence in the University’s financial management,” said Katherine N. Lapp, UC executive vice president for business operations.
“While UC is undergoing dramatic structural reforms in a variety of different areas, Moody’s recognizes it is doing so from a position of fundamental financial strength. The University has implemented a more strategic approach to its debt structure.” she added.
With the improved rating, the University of California now shares the same credit rating as other public universities, including Indiana University and Purdue University.
It now trails only the Universityof Michigan, the University of Texas and the University of Virginia on the top-10 list of best credit ratings for public institutions. Each of those institutions has an Aaa rating, the highest credit rating possible.
According to Moody’s, that rating is achievable for the UC in the future if it continues to develop its financial resources, has a favorable operating performance, and continues to keep its debt within manageable levels.
But the company also notes that dramatic increases in borrowing by the University, or reductions in State budget support for multiple years, will turn its credit rating back down.