WASHINGTON - A growing financial resource base with an increase in philanthropic funding has earned George Washington University an upgrade to A1 from A2 from Moody's Investors Service.

The agency yesterday upgraded the university's long-term rating to A1 with a stable outlook, affecting $556 million of outstanding bonds.

The upgrade reflects sustained financial resource growth, with total resources up 21% in fiscal 2007, an improved student market position for an array of programs, combined with a healthy operating cash flow, according to a Moody's press release.

The agency also affirmed its VMIG-1 short-term rating on the university's $200 million flexible note program. Standard & Poor'srates the university A with a positive outlook.Fitch Ratingsdoes not rate the credit.

The upgrade comes just before the university plans in March to convert $186 million of Series 2002A and 2002B taxable bonds from auction rate to three- to five-year term rate bonds. Lehman Brothers is the underwriter.

"The conversion is prompted by ... the performance that they've been experiencing with auction rate," said Moody's analyst Dennis M. Gephardt.

Muni auction-rate bonds have faced problems in the market recently, as auctions by both Georgetown University and Clark County, Nev., did not attract enough investors and failed, causing higher interest rates.

Moody's said George Washington University's strengths include a consistently positive cash-flow margin of 14% with a three-year average operating margin of 1.4% and average annual debt service coverage of 1.9 times, which allows it to fund a sizeable portion of the school's capital investment plan directly and limit future borrowing..

Another strength is the university's urban location with strong student demand and an enrollment of 20,108 full-time students. Its $22,988 tuition in fiscal 2007 was up 6% from the prior year and the university's undergraduate selectivity continues to show improvement, the rating agency added.

Further, the university's resources reached $1.25 billion in fiscal 2007 - including $46 million of gift revenue - up from $771 million in fiscal 2004, according to Moody's.

Gephardt said that for a large urban university, it has "gained quite a bit of traction" with the increase in donors.

"In fiscal year 2007, they had $46 million of gift revenue. That's more than a $20 million increase than two years prior," Gephardt said. "They've had a nice last few years, and the upgrade reflects the nice run that they've had."

Challenges include that George Washington's financial resources are concentrated commercial real estate holdings, making up a "significant" 16% of its resources in fiscal 2007. In addition, the university's growing research operations are largely funded by the National Institute of Health, which provide grants that are highly competitive and may not increase, the release said.

University officials did not return phone calls by press time. q

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