OREANDA-NEWS. Fitch Ratings has affirmed the 'F1+' rating on the Regents of the University of California's (UC, or the university) short-term debt obligations as follows:

--$600 million general revenue bonds (GRB), 2013 series AL (variable-rate demand bonds);
--$500 million GRBs, 2011 series Y (taxable floating rate notes);
--$150 million GRBs, 2011 series Z (taxable variable-rate demand bonds);
--$31.3 million medical center pooled revenue bonds (MCPRBs) 2013 series K (weekly rate);
--$2 billion taxable and tax-exempt commercial paper (CP) program.

SECURITY

GRBs are secured primarily by a broad pledge of UC's unencumbered revenues. MCPRBs are a limited obligation of UC, secured by the revenues derived from the operation of its five medical centers. CP is secured primarily by project revenues.

KEY RATING DRIVERS

FINANCIAL STRENGTH OF UC: The university maintains a strong financial profile, which is supported by exceptional student demand; a diverse revenue base; substantial balance sheet resources; and a manageable debt burden. While still negative on a full-accrual basis, the operating margin has seen some improvement. Fitch maintains a long-term 'AA' rating on UC's GRBs and a 'AA-' rating on the MCPRBs.

SUFFICIENT LIQUID RESOURCES: The 'F1+' rating reflects the adequacy of UC's internal liquidity resources to meet optional and mandatory tenders presented by its variable-rate debt and commercial paper (CP) programs. Such resources include cash, and highly liquid, highly rated investments and are in excess of Fitch's 1.25x requirement.

RATING SENSITIVITIES

FINANCIAL DETERIORATION: Erosion to University of California's (UC) internal resource base or to UC's broader general revenue credit to the point where the university could no longer sufficiently cover its variable-rate obligations, while unlikely, would put downward pressure on the rating.

CREDIT PROFILE

Chartered in 1868, UC is a comprehensive graduate research university with 10 campuses located in Berkeley, Davis, Irvine, Los Angeles, Merced, Riverside, San Diego, Santa Barbara, Santa Cruz, and a graduate campus in San Francisco for health sciences. It also operates five academic medical centers, four law schools, and a 135,000-acre statewide agricultural and natural resources division.

UC continues to benefit from its exceptional reputation and is the basis for its strong demand and selective admissions. Fiscal 2015 enrollment totaled approximately 250,000 students and applications to the university continue to grow, with over 206,000 applications received for fall 2016 enrollment. Management reports that all nine undergraduate campuses saw gains in applications, ranging from 12% increases at both Berkeley and Los Angeles to a 29% increase at Merced over the past two years.

INTERNAL LIQUIDITY SUPPORTS SHORT-TERM DEBT OBLIGATIONS

Liquidity support for UC's variable-rate debt programs is primarily derived from the strength of its short term investment pool (STIP). As of Sept. 30, 2015, the market value of STIP holdings, primarily highly rated corporate fixed-income instruments and governments, totaled $5.8 billion. Of this amount, approximately $4.93 billion (after conservative discounts based on asset type and maturity per Fitch's short-term rating criteria) provides in excess of the 1.25x coverage Fitch requires for an 'F1+' rating.

To manage potential calls on its liquidity, UC limits the amount of CP maturing daily to $200 million. In addition to STIP, the university has two revolving credit agreements totaling $700 million in support of self-liquidity obligations. UC's liquidation procedures plan adequately addresses the procedures to be followed in advance of maturing CP notes, mandatory tender dates, and for how a potential failed remarketing of variable-rate demand bonds would be addressed.

Fitch also maintains 'AA/F1+' ratings on $500 million of floating rate notes with a mandatory tender on July 1, 2017. The short-term rating on these notes is based on market access, rather than access to the STIP, due to the maturity. However, if included in the calculation for the use of self-liquidity, STIP would still have sufficient funds to meet Fitch's 1.25x requirement.