OREANDA-NEWS. Fitch Ratings has affirmed the Long-term 'AA+' rating on the following outstanding revenue bonds issued on behalf of Emory University (Emory, or the university):

--$965.4 million fixed-rate revenue bonds;
--$574.4 million variable-rate revenue bonds;
--$256.9 million taxable fixed-rate revenue bonds;
--$26.0 million taxable variable-rate revenue bonds.

The Rating Outlook is Stable.

SECURITY

Revenue bonds are an unsecured general obligation of Emory.

KEY RATING DRIVERS

STABLE FINANCIAL AND OPERATING PROFILES: The 'AA+' rating primarily reflects Emory's proactive management practices, with highly integrated healthcare and academic units, strong student demand, healthy balance sheet cushion and manageable debt burden. Counterbalancing credit factors include exposure to risks related to the healthcare industry, as about two-thirds of operating revenues are derived from healthcare operations.

WELL-INTEGRATED ORGANIZATION: Emory's management team capably oversees a complex organization, including healthcare and higher education divisions that share key resources and operate under a single leadership structure. On a consolidated basis, Emory generates consistent breakeven to slightly positive operations.

STRONG BALANCE SHEET CUSHION: Regular cash surpluses, successful fundraising, and sound investment management augment Emory's financial cushion, with available funds providing strong coverage of operating expenses and pro forma debt.

MANAGEABLE DEBT BURDEN: Emory maintains a manageable, though somewhat high debt burden due to the use of bullet maturities, which is typical of similarly rated institutions. Moreover, healthy annual operating cash flow provides for solid debt service coverage levels.

SIZEABLE CAPITAL PLAN: While Emory's size and scope necessitate periodic debt-financed capital needs, the university's manageable debt burden and prudent facilities planning partially mitigate concerns over its large capital plan.

RATING SENSITIVITIES

HEALTHCARE OPERATIONS: Due to its high revenue concentration in the healthcare sector, Emory University's continued ability to maintain balanced healthcare operations will strongly influence the rating and outlook.

MANAGED CAPITAL PLAN: Rating stability is also predicated on Emory's successful implementation of ongoing capital plans, while maintaining balanced operations and a manageable debt burden. The university has a potential new money borrowing in 2016 in support of ongoing capital projects.

CREDIT PROFILE

Founded in 1836, Emory is located six miles northeast of downtown Atlanta and is among the largest private higher education institutions (by enrollment) and hospital systems (by beds) in the southeastern U.S. For fall 2014, it enrolled 14,769 students in its ten colleges and schools. Enrollment grew a sound 1.8% from fall 2013 and 10.4% since fall 2010. Emory College maintains selective undergraduate admissions, with a 26.9% freshmen acceptance rate based on 17,796 applications for fall 2014. High retention and graduation rates also continue to reflect Emory's strong student quality.

Emory's healthcare operations include five hospitals (approximately 1,800 licensed beds) and several physician groups and joint ventures.

STABLE FINANCIAL PROFILE

Emory continues to generate a breakeven to slightly positive operating margin, inclusive of annual endowment distributions. Its operating margin was 0.5% in fiscal 2014, which was also the average over the prior five fiscal years (2009 - 2013). A similar result is anticipated for fiscal 2015. While this level of operating performance is slightly below other similarly rated institutions, Fitch notes positively that the university consistently produces cash surpluses that provide for sufficient debt service coverage, ranging between 1.2x and 2.6x over the past five fiscal years.

Revenues remain concentrated in Emory's large healthcare enterprise, which typically account for about two-thirds of operating revenue; 67.4% in fiscal 2014. While this high exposure presents some risk, Fitch notes that Emory's healthcare operations are generally profitable. Other notable revenue streams include federal grants and contracts and student-generated revenues, including tuition, fees and auxiliary receipts. Fitch notes that the university's revenues continue to grow, with total operating revenues reaching $4.13 billion in fiscal 2014, including endowment spending.

A strong balance sheet cushion remains a key strength of Emory, providing an offset to its concentrated revenue base. Available funds (cash and investments that are not permanently restricted) totaled $6.8 billion as of Aug. 31, 2014, up from $5.92 billion at fiscal year-end 2013. This substantial resource base covered fiscal 2014 operating expenses ($4.11 billion) and pro-forma debt (about $2.14 billion) by a strong 1.65x and 3.18x, respectively. Debt includes commercial paper, notes payable and revenue bonds, including an estimated $200 million of potential new debt, subject to board approval, over the near-term. The university's liquidity metrics compare favorably to other colleges and universities rated in the 'AA' category by Fitch.

EXPANDED AND INTEGRATED HEALTHCARE NETWORK

Over the past few years, Emory Healthcare has expanded its network and is the largest system in the competitive Atlanta marketplace. Emory's various affiliations include a joint operating company formed in 2011 with Saint Joseph's Health System in which Emory has a 51% ownership stake. Most recently, Emory was in discussion regarding a partnership with WellStar Health System, a large Georgia-based not-for-profit community health system, although it was recently announced that this proposal will not move forward.

Given the ongoing uncertainty surrounding healthcare reform, and state and federal budgetary pressures on Medicare and Medicaid funding, Fitch views the university's strategic focus positively. Fitch also notes that Emory's ongoing capital plan includes a new 210-bed hospital tower that is currently under construction and expected to open in 2017.

MANAGEABLE CAPITAL PLAN

Despite its expansive operations and ensuing capital needs, Fitch considers Emory's debt burden as manageable for the university. Projects currently under construction amount to approximately $500 million and primarily include the university's multi-year, multi-phase hospital expansion project (approximately $398 million) plus other science and research-related buildings. The projects are being funded with a mix of gifts, university funds and debt. Fitch notes favorably that Emory was able to fundraise for a significant portion of the hospital expansion project cost. As was anticipated at the time of Fitch's last review in 2013, Emory intends to issue an estimated $200 million of new debt, subject to board approval, over the near-term for the hospital expansion, a level Fitch considers manageable for the university.

Emory's capital structure, not unlike other similarly rated institutions, includes bullet maturities and variable-rate debt (about one-third) with associated interest rate swaps. Including bullets, pro forma MADS is about $364 million, including a $250 million bullet maturity in fiscal 2020. The resulting debt burden is high, with MADS consuming 8.8% of fiscal 2014 operating revenues. However, adjusting for bullet maturities, Emory's burden based on average annual debt service (about $101.7 million) is a low 2.5%. Fitch views Emory's ability to manage risks associated with its capital structure positively given its detailed liquidity and debt management policies, and market access as implied by its 'AA+' rating.