New York, December 06, 2012 --
Issue: Taxable Bonds, Series 2012; Rating: Aaa; Sale Amount: $15,000,000; Expected Sale Date: 12-12-2012; Rating Description: Revenue: 501c3 Unsecured General Obligation
Moody's Investors Service has assigned a Aaa rating to the Institute for Advanced Study's ("IAS") Taxable Bonds, Series 2012 and affirmed the Aaa/ VMIG 1 ratings on outstanding bonds. The rating outlook remains stable.
SUMMARY RATING RATIONALE
The Aaa rating reflects the institute's established market reputation as a premier theoretical research institution in the field of mathematics, natural sciences, social science, and historical studies, exceptionally strong financial resources cushion relative to debt and operations, and consistently positive operating cash flows. Credit challenges include high reliance on investment income and complex investment strategy that includes a large portion of less liquid investments. The VMIG 1 ratings reflect the institutes own credit profile combined with the terms of standby bond purchase agreements with Wells Fargo Bank.
*One of the world's leading centers for theoretical research and intellectual inquiry, the institute awards fellowships to some 200 visiting members every year, from about one hundred universities and research institutions throughout the world.
*Exceptionally strong financial resources relative to debt and operating expenses with total cash and investments currently (October 31, 2012) valued at $619 million. FY 2012 expendable financial resources provided 6.8 times coverage to pro-forma debt and 7.8 times coverage to operations.
*Improved fundraising initiatives resulting in increased gift flow, with three-year average annual gift revenue of approximately $47.5 million.
*Strong operating flexibility with the ability to decrease expenses as they relate to Members, including post-doctoral candidate positions, and planned faculty increases.
*Heavy operating reliance (FY 2012: 42.1%) reliance on investment income makes the institute vulnerable to the market fluctuations.
*Unusually low monthly liquidity of $31.1 million, relative to rating, providing a thin 68.5% coverage to total demand debt in FY 2012. However, the institute has $27 million of investments in hedge funds on which the lock up period has expired which can be accessed if required. Including those, the ratio improves to 130%. Additionally, the institute has two line of credit totaling $50 million which it could potentially access.
*Complex investment strategy which favors relatively illiquid assets results in relatively modest liquidity compared to Aaa-rated peers. As on 30 June 2012, the institute had 86.7% of its investments in private equity and hedge funds. FY 2012 monthly liquidity was only 5% of total cash and investments - notably lower than most other Aaa-rated peers.
The stable outlook is based on our expectation that the institute will continue to manage its investments and finances prudently, and that its robust financial resources relative to debt and operating expenses will not change materially in the near term. The stable outlook also incorporates our assumption that the institute will continue to monitor its monthly liquidity to enable it to repay any potential debt acceleration.
WHAT COULD MAKE THE RATING GO UP
WHAT COULD MAKE THE RATING GO DOWN
Significant investment losses; reduction in investment liquidity; material and sustained reduction in the philanthropic support; erosion of financial resources and weakening of operating performance.
The Rating was assigned by evaluating factors believed to be relevant to the credit profile of Institute For Advanced Study , such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the issuer's management and governance structure related to payment. These attributes were compared against other issuers both within and outside of the Institute's core peer group and the rating is believed to be comparable to ratings assigned to other issuers of similar credit risk.
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Pranav Sharma Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Dennis M. Gephardt Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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