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Moody's Investors Service Inc.

Moody's Assigns Aa3 Ratings to University of Kentucky's Lease Purchase Obligations and Affirms Existing Ratings

Strategic Insights

— 1 min read

The University of Kentucky's (UK) proposed Lease Purchase Obligations, Series 2025A and 2025B, have been assigned Aa3 ratings by Moody's Investors Service. This comes as the university continues to experience strong operating cash flow and debt service coverage, driven by its excellent strategic position as the flagship university and highly integrated academic medical center for the Commonwealth of Kentucky. The stable outlook reflects the expectation that UK will maintain its solid financial performance, despite potential risks associated with its healthcare enterprise.

Key Takeaways:

  • Moody's assigned Aa3 ratings to the University of Kentucky's Lease Purchase Obligations, Series 2025A and 2025B, totaling approximately $98.6 million.
  • The obligations will have fixed rates and mature in 2055 and 2032, respectively.
  • The university has recorded total debt of $1.6 billion at fiscal end 2024 and has a stable outlook.
  • UK's excellent strategic position, strong management, and growing revenue across both enterprises support the Aa2 issuer rating.
  • The university has substantial wealth, with fiscal 2024 total cash and investments of $5.0 billion covering expenses 0.8x and having 208 monthly days cash on hand.
  • Revenue growth and solid EBIDA margins reflect strong fiscal stewardship, with excellent financial policies and strategies.
  • Leverage remains modest relative to peers, with wealth to pro forma debt at 2.2x and pro forma debt to revenue of 0.3x.
  • UK's capital investment program is expected to be fueled by donor support, third-party partnerships, disciplined reserve use, and available debt capacity.
  • The university's strengths are tempered by significant healthcare exposure of about 70% of operating revenue.
  • Moody's affirmed the Aa3 rating on outstanding lease purchase obligations and parity certifications of participation, one notch below the issuer rating and revenue (general receipts) bonds.

Statistics:

  • Total debt: $1.6 billion (fiscal end 2024)
  • Lease Purchase Obligations: approximately $98.6 million (Series 2025A and 2025B)
  • Wealth to pro forma debt: 2.2x
  • Pro forma debt to revenue: 0.3x
  • Fiscal 2024 operating revenue: $6.7 billion
  • Fall 2024 enrollment: 33,845 full-time equivalent (FTE) students
  • Fiscal 2024 total cash and investments: $5.0 billion

Sources:

  • Moody's Investors Service: Moody's Ratings Rationale
  • Moody's Investors Service: Higher Education methodology (July 2024)
  • Moody's Investors Service: Rating Methodologies page (https://ratings.moodys.com)

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