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Rating Action: Moody's assigns Aa2 to Nevada System of Higher Education, NV's university revenue bonds; outlook is stableGlobal Credit Research - 15 Mar 2022New York, March 15, 2022 -- Moody's Investors Service has assigned a Aa2 rating to Nevada System of Higher Education (NSHE), NV's proposed approximately $24 million in Universities Revenue Bonds, Series 2022. The proposed bonds will have final maturity in fiscal 2033. We maintain a Aa2 issuer rating, Aa2 ratings on outstanding universities revenue bonds, and Aa3 ratings on outstanding community college revenue bonds. Based on pro forma debt schedules, post-sale, the system will have $1.1 billion in total debt outstanding. The outlook is stable.RATINGS RATIONALENSHE's Aa2 issuer rating incorporates the system's excellent strategic positioning as the sole system of public higher education for the state through its two-year and four-year campuses. Revenue sources are diverse and good revenue and expense management has led to historically adequate, albeit somewhat thin, EBIDA margins. Operations are expected to improve over the next couple of years due to both an increase in state appropriations and recognition of HEERF funding. Enrollment declined slightly due to the pandemic, but with a return to in-person education, management anticipates continued, modest increases in FTEs. Wealth and liquidity remain very strong at nearly $2 billion as of fiscal 2021. Leverage is above average, driven in large part by the system's unfunded pension liability.The assignment and maintenance of the Aa2 rating on university revenue bonds (URBs) reflects the scale, scope and essentiality of the two four-year universities with overall growing enrollment and net pledged revenue. The community college revenue bonds (CCRBs) are rated Aa3, reflecting a more limited pool of pledged revenue available for debt service, but excellent projected debt service coverage. Pledged revenue for all outstanding debt excludes state appropriations and is susceptible to fluctuations in student fees from enrollment.RATING OUTLOOKThe stable outlook reflects Moody's expectations of improved state funding in fiscal 2022 and fiscal 2023, and a resumption of near-normal operations on all campuses resulting in EBIDA margins in line with historic levels.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING-Significant growth of cash and investments relative to debt and operations-Substantial and sustained improvement of operations and resulting EBIDA margins-Expansion of student market and research profileFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING-Deterioration of the state's credit quality or sustained decline in state funding, given comparatively high reliance on state support-Inability to restore stronger operating performance and debt service coverage on an aggregated basis-Material reduction in liquid reserves-Substantial increase in leverage without offsetting growth of pledged revenue or financial reservesLEGAL SECURITYThe universities revenue bonds are secured by mandatory student fees collected at UNR and UNLV, net revenue from a variety of auxiliary enterprises at the universities and all unrestricted federal and state grant revenue. Pledged revenue exclude tuition from non-resident students, summer session fees collected and fees and revenue from the system's other members. Fiscal 2021 net pledged revenue totaled $259 million and provided robust coverage of maximum annual debt service of nearly 7.1x. There is no debt service reserve fund, but there are tests for additional indebtedness.The community college revenue bonds are secured by the net pledged revenue of the system's community colleges, including gross student fees, the capital improvement fee, the student association fee and the general improvement fee. Net pledged revenue also include all grants, conditional or unconditional (federal, state or any other donor) and net revenue from income-producing buildings, structures and improvements at the community colleges. Fiscal 2021 net pledged revenue provided around 20x coverage of maximum annual debt service.USE OF PROCEEDSProceeds of the series 2022 bonds will be used to refund existing maturities for net present value savings.PROFILENSHE is comprised of two four-year public universities: University of Nevada, Las Vegas (UNLV) and University of Nevada, Reno, (UNR) both comprehensive universities; Nevada State College, a four-year state college in Henderson near Las Vegas; the Desert Research Institute, the system's basic and applied environmental research division; and four two-year community colleges with limited bachelor's degrees. The community colleges, College of Southern Nevada, Great Basin College; Truckee Meadows Community College; and Western Nevada College, are located throughout the state. Starting July 1, 2022, Sierra Nevada University will be acquired by the system, and will be a branch campus under the UNR umbrella. Total system full-time equivalent (FTE) enrollment was over 72,000 in fall 2021. Total operating revenue was $1.8 billion in fiscal 2021.METHODOLOGYThe principal methodology used in this rating was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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. 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. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. 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