OREANDA-NEWS. July 13, 2015 Fitch Ratings has affirmed the 'AA+' rating on approximately \\$30 million of outstanding Board of Trustees of the University of Alabama general revenue bonds, series 2006-A and 2006-B, issued on behalf of the University of Alabama (UA, the university).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from a broad pledge of university gross revenues, including tuition and fees, auxiliaries, and unrestricted contributions. State appropriations are excluded from the pledge.

KEY RATING DRIVERS

STATE FLAGSHIP UNIVERSITY: UA is the state flagship university, offering a variety of degree programs through 10 schools and colleges. Strong operating margins, a solid financial cushion, and favorable demand trends underpin the 'AA+' rating.

STRONG FINANCIAL OPERATIONS: Strong operating margins averaging nearly 10% annually since fiscal 2010 with little deviation far exceed rating category medians and highlight the university's strong financial position.

SOLID FINANCIAL CUSHION: Robust balance sheet resources provide the university with ample financial flexibility. UA's available funds cover operating expenses and total long-term debt by 129.5% and 123.7%, respectively.

FAVORABLE DEMAND PROFILE: Solid enrollment growth evidencing continued demand ultimately supports the university's financial position. FTE enrollment grew by an average of 4.6% annually from fall 2009-2014 to 33,679, including the largest incoming classes in university history.

GROWING, MANAGEABLE LEVERAGE: Strong maximum annual debt service (MADS) coverage averaging 2.6x annually since fiscal 2010 and a moderate MADS burden of 6.6% mitigate a sizable two-thirds increase in debt during the period to fund capital projects.

RATING SENSITIVITIES

ADDITIONAL DEBT ISSUANCE: The University of Alabama's issuance of additional debt without commensurate growth in financial resources sufficient to maintain solid debt service coverage levels and balance sheet strength could negatively pressure the rating.

CREDIT PROFILE

Founded in 1831 and located in Tuscaloosa, UA is the oldest institution of higher education in the state. The university is part of the University of Alabama System, which includes the legally autonomous University of Alabama at Birmingham and the University of Alabama in Huntsville. Each university has a separate president and issues debt secured by its own revenues.

Dr. Stuart Bell will become UA president on July 15th. Dr. Bell joins UA from Louisiana State University where he was executive vice president and provost since 2012. He succeeds Dr. Judy Bonner, who is leaving the presidency to return to teaching at UA in fall 2016.

STRONG FINANCIAL OPERATIONS

UA's robust operating margins and available funds ratios comfortably exceed rating category medians and evidence the university's overall financial strength. Adherence to prudent financial practices, including multi-year forecasting and conservative budgeting assumptions, underlie the strong operating performances.

Operating margins have averaged 9.9% annually since fiscal 2010, including 11.8% in fiscal 2014. In addition, interim fiscal 2015 results point to continued positive trends. Financial forecasts through fiscal 2019 are more conservative than in prior years. Nevertheless, operating margins remain stable and healthy at near 5% annually.

UA has produced favorable financial results despite year-over-year reductions in state funding from fiscal 2009-2013. Timely adjustments in student charges and favorable enrollment trends helped offset the funding declines. Fiscal years' 2014 and 2015 state appropriations resumed positive growth.

The state of Alabama's general obligations bonds are rated 'AA+' by Fitch with a Stable Outlook.

SOLID FINANCIAL CUSHION

UA's financial cushion benefits from strong operations and continues to provide stable, solid coverage of annual operating expenses and total debt. Fiscal 2014 available funds (defined as cash and investment less nonexpendable and certain expendable restricted net assets) represented 129.5% and 123.7% of operating expenses and total long-term debt, respectively. Available funds grew by 30% since fiscal 2010 to \\$1.13 billion in fiscal 2014.

FAVORABLE DEMAND PROFILE

A strong demand profile ultimately supports the university's financial position. FTE enrollment has grown by an average of 4.6% annually since fall 2009 to 33,679 in fall 2014, as noted. Freshman applications grew by three-quarters during the period and incoming classes in the past three years are the largest in university history. Management expects another historically large class of likely more than 7,000 in fall 2015.

Management continues to build the out-of-state student body to foster additional growth. Out-of-state students now comprise about half of the total, compared with one-third in fall 2009. Furthermore, the university remains focused on growing headcount without forfeiting student quality, evidenced by year-over-year gains in average freshmen ACT scores (26.7) that consistently exceed state and national averages.

Continued enrollment growth, in part, has ushered a shift toward greater student-derived revenues currently representing 58% of the total. Tuition increases to offset prior cuts to state appropriations have also contributed to the change. However, a competitive pricing position and more moderate projected tuition increases of 3% annually, compared to historical averages of nearer 7% since fall 2009, should benefit enrollment.

GROWING, MANAGEABLE LEVERAGE

UA's ability to generate strong operating margins and debt service coverage ratios, as well as its moderating MADS burden, mitigate a sizable two-thirds increase in leverage since fiscal 2010 to \\$912 million (fiscal 2014). MADS coverage averaged 2.6x during the period with little deviation. In addition, the university's MADS burden steadily declined to a more moderate level of 6.6% from 8.4%. All debt is in fixed-rate form.

The university's ongoing capital projects accommodate present and future growth. The October 2015-September 2020 capital plan totals \\$471 million, including \\$75 million for a new residence hall facility and \\$46 million for a new business school facility. The plan size is consistent with expectations from Fitch's 2013 review of UA. Moreover, the university's ratio of available funds to pro-forma debt, including a proposed \\$184 million debt issuance in 2017, exceeds the rating category median at 102.9%.

A strong rate covenant requires the university to maintain pledged revenues equal to at least 200% of MADS.