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Rating Action: Moody's affirms Colorado State University System's (CO) Aa3 underlying, Aa2 enhanced and P-1 ratings; outlook stableGlobal Credit Research - 29 Mar 2021New York, March 29, 2021 -- Moody's Investors Service has affirmed Colorado State University System's (CSUS or the system) (CO) Aa3 underlying ratings and Aa2 enhanced ratings, as well as P-1 rating on the Commercial Paper (CP) program. All bonds are issued by the Board of Governors of the Colorado State University System. This action affects approximately $1.0 billion of underlying rated debt and $728 million of intercept rated debt. The CP program is currently authorized at $50 million. The outlook on the underlying and enhanced ratings is stable.RATINGS RATIONALEThe affirmation of the Aa3 underlying rating reflects the system's excellent strategic positioning based on its role as the land grant institution for the State of Colorado (Aa1 stable issuer rating), with a nearly $1.5 billion scope of operations and meaningful research enterprise. The system's growing national brand is reflected in its relatively steady student demand, growing net tuition revenue and robust donor support. Solid fiscal stewardship acknowledges the maintenance of sound operating results even while confronting the significant revenue and expense impacts related to the coronavirus pandemic. Federal aid funding from the three relief packages of fiscal years 2020-21 provide a total of approximately $109 million, with at least $32 million in direct aid for students. For fiscal 2021, the system is using a portion of institutional federal aid funds, in addition to expense reductions and debt service restructuring, to address auxiliary revenue shortfalls. Offsetting challenges include high debt relative to financial reserves and revenue, with recent debt restructurings adding near term interest rate risk. Further, the system's revenue bonds have a limited revenue pledge that excludes 90% of tuition revenue and the sizable principal payments due in fiscal 2024 are not well matched to the existing legal security. State operating and capital support is low relative to peers, and the system is exposed to an elevated underfunded pension liability.The affirmation of the Aa2 enhanced rating incorporates the program-level Aa2 rating of the Colorado Higher Education Enhancement Program, which is based on the State of Colorado's Aa1 issuer rating, as well as the sufficiency of interceptable revenues and transaction structure.Affirmation on the P-1 rating on the system's Commercial Paper Notes, Series A and Taxable Series B is based on the system's credit quality and effective treasury management of its self- liquidity program, with internal funds that provide ample support on a same-day basis in the event of a failed remarketing.RATING OUTLOOKThe stable outlook on the system's underlying rating reflects Moody's expectations of continued sound operating performance and solid debt service coverage, with ongoing operational adjustments to maintain spendable cash and investments relative to expenses and debt.The stable outlook for the enhanced ratings reflects the outlook for the programmatic level rating which currently mirrors the outlook for the State of Colorado.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS-Substantial increase in spendable cash and investments relative to debt and expenses-Sustained and material improvement in operating cash flow-Limited debt increases-Upgrade in the State of Colorado rating (enhanced rating)FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS-Sustained deterioration of cash flow margins and debt service coverage-Erosion of liquidity-Significant increase in leverage-Deterioration in credit quality of the State of Colorado rating or observation that the program does not function as contemplated (enhanced rating)- Consistently weak coverage of commercial paper from self-liquidity (short-term rating)LEGAL SECURITYThe system's enterprise revenue bonds and the parity rated CP program are secured by a pledge of revenues at both CSU and CSU-Pueblo (Global Campus revenues are not pledged). These include: net revenues of certain auxiliary enterprise facilities (housing, dining, parking, and certain student recreational facilities), certain mandatory student fees collected at both campuses, indirect cost recoveries (overhead received for research grants and contracts), as well as 10% of net tuition revenue. In addition, the federal subsidies expected to be received in connection with the Series 2010B and 2010C bonds are pledged to the payment of the revenue bonds. The revenue pledge is net of operating and maintenance expenses of auxiliary facilities.The fiscal 2020 net pledged revenue was $169 million, which is a limited 12% of the system's operating revenues. Pledged revenue coverage is narrower compared to debt of rated peers due to the limited 10% pledge of tuition monies. Fiscal year 2020 debt service coverage from pledged revenue was 2.3x. Currently, with the March 2021 issuance of the Series 2021A and 2021B bonds, maximum annual debt service of $350 million in fiscal 2024, which includes $230 million in bullet payments, exceeds net pledged revenue. The system expects to refinance the bullet payments before maturity.Certain of the system's enterprise revenue bonds are further secured by the presence of the state intercept program.PROFILEThe Colorado State University System includes the system administration, which oversees three component institutions: the state's land grant institution, Colorado State University in Fort Collins; Colorado State University-Pueblo; and Colorado State University-Global Campus, a fully online public university. CSU also manages extension offices in 60 of the 64 counties in Colorado. In fiscal 2020, the system's operating revenue totaled $1.45 billion and in fall 2020 served a full-time equivalent (FTE) of 38,217 students.METHODOLOGY The principal methodology used in the long-term underlying ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. The principal methodology used in the long-term enhanced ratings was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. The principal methodology used in the short-term ratings was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. REGULATORY DISCLOSURESFor 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. 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Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. 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