Fitch Ratings, a company that assesses the quality of bonds, upgraded its rating of the University of Connecticut’s bonds to denote that they are a largely secure investment.
The state of Connecticut’s UConn General Obligation bonds, which are sold to financially support the university, were upgraded from “A+” to “AA-”. According to university spokesperson Stephanie Reitz, the improved rating will allow the school to allocate more funds towards projects for students.
“When the University has a better bond rating, it pays less in interest costs on borrowing for large projects (such as construction of new buildings),” Reitz said in an email. “That means more money can be used for programs and services that directly benefit students instead of paying higher interest rates.”
“AA” ratings are the second highest ratings issued by Fitch, with “AAA” being the highest. The Fitch Ratings website says that these ratings “indicate very strong capacity for payment of financial commitments.” This means that the bonds have a low risk of default and are not significantly vulnerable to expected events, according to the website.
The website also notes that the key drivers of the rating included long-term liability, revenue framework, expenditure framework and operating performance. Of all these factors, UConn had the highest grade in operating performance, in which it was rated “aaa.”
“Budget management powers and sophisticated fiscal monitoring, including frequent revenue and budget forecasting, allow the state to quickly identify budget under-performance and address emerging gaps,” the website said of UConn’s operating performance.
“Budget management powers and sophisticated fiscal monitoring, including frequent revenue and budget forecasting, allow the state to quickly identify budget under-performance and address emerging gaps.”
Fitch Ratings Website on UConn’s bond
The bonds’ expenditure framework was rated “aa.” The website said that the state “consistently demonstrated the ability to cover its comparatively high fixed costs” and “benefits from the large degree of budgetary autonomy common to states.”
The final two factors, revenue framework and long-term liability, were both rated “a.” The website said that the revenue framework was subject to cyclicality, but well-diversified, and the long-term liability was high compared to other states but “moderate relative to personal income.”
According to a press release from the university, the Treasurer’s Office and UConn offered roughly $227 million of bonds for sale in early November, shortly after the better rating was announced. The press release said that this sale will fund projects such as “the South Campus residence hall under construction, its related infrastructure, the new Science 1 building, Gant Science Complex renovations, and others.”
The university will also raise money through receiving refunds with lower interest rates on $129.3 million of bonds that they sold earlier.
“Having the lower bond rating may help financially both in terms of any new bonds that the university or the state have to sell for future projects, and also in cases when we could refinance those that are at higher rates and save money under the lower rate,” said Reitz.
Fitch’s website says that the factors that could lead to a negative rating action include weak budget management amplifying structural problems within the state and any actions that would elevate the state’s liability, which is what they owe to other entities.
The website also says that factors that could lead to even more positive rating actions include consistent economic growth that exceeds expectations, as well as sustained success in lowering its liability.
According to Reitz, this change came about because the rating agency recognized Connecticut’s commitment to fiscally backing institutions like UConn.
“It was prompted by a combination of UConn’s fiscal stability and the state’s support of higher education as a whole,” Reitz said.