LOS ANGELES — Moody's Investors Service downgraded the University of California's general revenue bond rating to Aa2 from Aa1 ahead of its first bond sale this year.

The March 12 downgrade affects $18.5 billion of outstanding debt, including fully authorized commercial paper and revolving credit lines, as well as the $750 million of bonds the university plans to issue during the first week in April.

"The downgrade to Aa2 reflects the university's multiple years of operating deficits, rising fixed costs, and revenue constraints," Moody's analysts wrote. "The rating also incorporates the university's substantial and growing debt burden, increasing the importance of stronger cash flow to absorb rising debt service obligations."

Analysts added that the university's ability to improve operations would be further limited by public policy and faculty and staff that is 40% unionized.

The university's other rated debt obligations were also downgraded to maintained their existing rating distance from the revenue bonds, with some series downgraded to Aa2 and others to Aa3.

"The magnitude of the university's operations, global academic and research reputation, economic importance, as well as its role in providing high-end healthcare services throughout the state of California anchor the rating at Aa2," analysts said.

The university's robust financial reserves and strong fundraising capacity will allow it to absorb continued moderate operating losses at this rating level while it implements initiatives to balanced operations, they added.

The outlook is stable.

The rating could be downgraded if there is further erosion of the university's liquidity profile, a sustained increase in financial leverage, and an absence of sustained improvement in operating and cash flow margins.

Significant deterioration of medical center operations could also pressure the outlook or rating.

"An upgrade is not likely in the near term given expectations of continued pressure on salaries, benefits and capital investments, according to Moody's. "A positive outlook or upgrade would be based on a sustained improvement in operations combined with improved operating and balance sheet leverage."

The action follows a downgrade by Fitch Ratings last month on the university system to AA from AA-plus.

Standard & Poor's rates the university's outstanding revenue bonds at AA.

The new bonds issued by the university next month will include a tax-exempt and taxable portion, according to Moody's.

Wells Fargo and Goldman, Sachs & Co. are senior managers on the deal, leading the syndicate of 18 underwriters, according to the State Treasurer's Office.

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