Standard & Poor’s Friday revised the outlook on the University of Medicine and Dentistry of New Jersey to stable from negative and affirmed its BBB rating on the credit.

The outlook change affects $504 million of outstanding debt. Moody’s Investors Service rates the school Baa2 with a negative outlook. Fitch Ratings does not rate the credit.

While the school has strengthened its fiscal oversight, it still faces financial pressures.

“The revised outlook reflects the improvements in governance, management, and timeliness of audited statements that UMDNJ has made since December 2006, when the negative outlook was assigned,” Standard & Poor’s credit analyst Charlene Butterfield said in a press release. “The BBB rating reflects very weak financial performance at University Hospital, significantly reduced unrestricted net assets, and a light liquidity position that could be further weakened by the potential accelerated debt repayment related to the Series 2002B bonds, which are now bank bonds. Repayment on the 2002B bonds will begin in the next 30 days if the university cannot refinance the debt.”

The university plans to issue up to $575 million of refunding bonds in March through the New Jersey Educational Facilities Authority. The most urgent refundings include the Series 2002B variable-rate bonds for $95 million and the Series 2001A auction-rate lease revenue certificates for $34 million, according to Roger Anderson, NJEFA’s executive director.

Officials expect to refinance the 2002Bs into fixed-rate debt. The floating-rate bonds are insured by Ambac Assurance Corp. and carry additional enhancement via a liquidity facility provided by Bank of America NA.

The 2001A bonds will be refinanced into variable-rate debt. The securities carry MBIA Insurance Corp. backing and the new variable-rate bonds will have a letter of credit from Bank of America.

“The priority series for the university are to get rid of the 2001 auction rates and the 2002 insured variable rates, Anderson said. “Those are the ones that have to get done; everything else is dependent on the market.”

Morgan Stanley is senior manager on the transaction. Gibbons PC is bond counsel and Acacia Financial Group Inc. is financial adviser. UMDNJ has roughly $648 million of outstanding debt.

The stable outlook could help the institution as it heads to market. 

“It’s a tough market for triple-Bs of any kind,” Anderson said. “But the fact that the outlook has been improved, we’re hoping resonates well with investors.”

 

 

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