Rating Action: Moody's assigns Aaa to University of Washington's (WA) 2022 revenue bonds; outlook stableGlobal Credit Research - 01 Feb 2022 New York, February 01, 2022 -- Moody's Investors Service has assigned a Aaa rating to the University of Washington's (WA) proposed $564 million bonds, including $75 million in General Revenue Bonds, 2022A, $389 million of General Revenue [and] Refunding Bonds, 2022B (Taxable) and $100 million General Revenue Refunding Bonds, 2022C (Term Rate Bonds). We have also affirmed the university's Aaa issuer rating, the Aaa on outstanding General Revenue bonds, the Aa1 on Lease Revenue Bonds, and the P-1 on UW's $250 million commercial paper program supported by its own liquidity. Total debt outstanding as of June 30, 2021 was $2.4 billion. The outlook is stable. RATINGS RATIONALE The affirmation of University of Washington's Aaa issuer rating incorporates its excellent brand and strategic positioning reflecting the synergies and strengths of its large-scale research, healthcare, and educational operations. As the state's flagship university with a comprehensive array of programs, the university benefits from strong student demand. Its market position is bolstered by a prominent research profile enhanced by its sizable academic medical center. Overall wealth levels are considerable and growing supported by strong fundraising. UW governance and management are strong, including integrated planning and very active oversight. The university's operating performance remains exposed to the volatility of its healthcare enterprises operations. Relatively high leverage including a large and growing pension liability, and comparatively modest liquidity are other offsetting credit considerations. The assignment and affirmation of University of Washington's General Revenue bonds reflect the general obligation pledge of the bonds.The assignment and affirmation of the Aaa rating on the General Revenue Bonds reflects the unsecured general obligation nature of the payment obligation and the Aaa issuer rating. The affirmation of the Aa1 rating on the Lease Revenue bonds reflects the university's general credit quality along with a lease structure for the transaction with no abatement risk, including a ground lease for privately-owned property and a facilities lease with a sole purpose corporation. The P-1 short-term rating is based on the university's long term credit strength, excellent debt and treasury management, and ample university self-liquidity for maturing commercial paper.RATING OUTLOOK The rating outlook is stable incorporating our expectations that improved operating cash flow margins will be sustainable, supported by UW Medicine's stabilizing results which are in turn supported by greater patient revenue and operational efficiencies. The outlook is also underpinned by our expectations that continued growth in the university's reserves will remain in line with peers and additional borrowing will remain moderate. FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Sustained, weaker operating performance, or pressures on major revenue streams such as patient care, state funding, or research funding- Material debt plans beyond those outlined- For the short term rating, reduction in same day liquidity, increased calls on liquidity, or weakening of debt and treasury ManagementLEGAL SECURITY Security of the General Revenue Bonds and the General Revenue notes are General Revenues, including all non-appropriated and nonrestricted revenues and fund balances, with $4.0 billion of pledged general revenues and $2.2 billion of general revenue balances. There is no debt service coverage covenant, no debt service reserve fund, and no additional bonds test. The Lease Revenue Bonds are secured by lease payments made by the University of Washington solely from its General Revenues under a facilities lease between UW and the borrower for the bonds. Lease payments are not subject to appropriation or abatement. There is no debt service reserve fund for any bond series. USE OF PROCEEDSBond proceeds will be used for capital expenditures, refunding and to pay the cost of issuance.PROFILE Founded in 1861, the University of Washington is the State of Washington's flagship university with fall 2021 full time equivalent students (FTEs) of 60,359 on its campuses in Seattle, Tacoma and Bothell. UW's operations are sizable with $6.8 billion of operating revenue in fiscal 2021. UW is also one of the nation's largest research universities with $1.8 billion of research awards (excluding government relief for coronavirus pandemic) for fiscal 2021. UW operates UW Medicine whose service area is broad as the only academic health system and Level 1 trauma care provider for Washington, Wyoming, Alaska, Montana and Idaho (WWAMI). The university's consolidated operations include the now merged University of Washington Medical Center (UWMC) and Northwest Hospital (NWH), together with 810 beds. UW Medicine's Harborview Medical Center, owned by King County and managed by the university is not included in university results and Valley Medical Center, a public district hospital managed by UW Medicine under a strategic alliance, is reported as a component unit outside the consolidated results. METHODOLOGY The principal methodology used in the long-term ratings was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. The principal methodology used in the short-term rating was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/research/Short-term-Debt-of-US-States-Municipalities-and-Nonprofits-Methodology--PBM_1210749. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. 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. 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