Standard & Poor's revised its outlook to positive from stable on the Tennessee State School Bond Authority's bonds and issuer rating ahead of an upcoming sale.
The rating agency also affirmed the AA bond and issuer ratings. The authority's bonds are secured by a Tennessee state-aid intercept program.
"The positive outlook on the long-term ratings reflects the application of our state-intercept criteria and the positive outlook on the ICR reflects the application of our government-related entity criteria," said Standard & Poor's analyst Shivani Singh.
"The long-term ratings are notched one rating lower than the state's AA-plus rating, pursuant to our state intercept criteria," Singh said.
Factors supporting the rating include historically strong levels of operating and capital support from the state for its higher education system despite recent state funding pressures, a broad pledge of fees and charges from public colleges, universities and some community colleges, and a strong state appropriation-intercept mechanism if the fees and charges are insufficient to pay debt service.
Other factors include broad revenue and geographic diversity of the statewide system, historically good enrollment growth, and expected strong future enrollment trends.
Singh said offsetting factors include upcoming capital needs for institutions that require new debt in the next three to five years, and a constrained state-appropriation environment in recent years, though management expects a more stability in the future.
Standard & Poor's assigned AA ratings to the authority's upcoming $419 million sale, expected to price next week.
The bonds are also rated AA-plus by Fitch Ratings and an enhanced Aa1 by Moody's Investors Service.