OREANDA-NEWS. August 24, 2015. Fitch Ratings has affirmed its 'F1+' rating on approximately \\$49 million of outstanding variable-rate general revenue bonds (GRBs) issued by the University of North Carolina Board of Governors on behalf of the University of North Carolina at Chapel Hill (UNC-CH).

SECURITY

GRBs are secured by legally defined available funds of UNC-CH (pledged revenues), including unrestricted general fund balances and unrestricted quasi-endowment fund balances (\\$1.95 billion in fiscal 2014). Specifically excluded from pledged revenues are state appropriations, tuition and restricted funds.

KEY RATING DRIVERS

UNIVERSITY FINANCIAL STRENGTH: UNC-CH maintains a strong financial profile evidenced by substantial balance sheet resources; healthy operating performance that is driven by diverse revenues, strong student demand, and robust fundraising; and a manageable debt burden. Fitch maintains a long-term 'AAA' rating UNC-CH's general revenue bonds.

SUFFICIENT LIQUID RESOURCES: UNC-CH has the ability to cover the maximum potential liquidity demands presented by its variable-rate debt programs by more than 1.25x from internal resources. Such resources include cash, highly liquid, highly rated investments and dedicated liquidity facilities.

RATING SENSITIVITIES

FINANCIAL DETERIORATION: Erosion to the University of North Carolina at Chapel Hill's internal liquid resource base or to its general credit profile to the point where the university could no longer sufficiently cover its variable-rate obligations, while unlikely, would put downward pressure on the rating.

CREDIT PROFILE

Established in 1789, the University of North Carolina at Chapel Hill is the flagship of the 17-member University of North Carolina System. UNC-CH's demand indicators continue to reflect its market position as a highly selective, research oriented public university. Enrollment levels have remained steady for the past few academic years. Fall 2014 headcount enrollment totaled 29,135 students, of which 63% were undergraduates. Full-time equivalent (FTE) enrollment totaled 26,972. Both headcount and FTE enrollment were flat with fall 2013 levels.

Based on preliminary admissions data, UNC-CH received 31,955 freshmen applications for fall 2015, up 2% from fall 2014. The fall 2015, the freshman acceptance rate was a selective 29.7%, with a solid 42.9% of accepted students choosing to enroll; both comparable to the prior year.

LIQUID RESOURCES SUPPORT SHORT-TERM DEBT
The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover potential maximum liquidity demands presented by UNC-CH's outstanding variable-rate GRBs and commercial paper (CP) notes. To supplement internal liquidity sources, UNC-CH maintains the ability to draw on dedicated lines of credit in the aggregate amount of \\$400 million. Of the university's substantial cash and investments, approximately \\$301.3 million, including U.S. government and agencies securities and investment grade corporate debt (after discounts based on asset type and maturity per Fitch's short-term rating criteria) was available on a same-day basis on June 30, 2015.

On a combined basis, UNC-CH's liquid assets totaled \\$701.3 million and covered its maximum liquidity needs of \\$499 million by an adequate 1.41x. Fitch typically expects coverage of at least 1.25x for an 'F1+' rating. The university's liquidity needs include \\$49 million of outstanding weekly variable-rate GRBs, \\$100 million of floating rate notes that have a mandatory tender on Dec. 1, 2015, and the total CP authorization of \\$350 million (including \\$100 million for North Carolina State University). UNC and NC State currently have \\$33 million and \\$10 million of CP notes outstanding, respectively. Fitch does not rate the CP program.

To minimize potential daily calls on its liquidity, the university limits the amount of CP notes that can come due on a given day to \\$50 million. UNC-CH's management team has a regularly updated set of liquidation procedures in place detailing the process by which a need for internal liquidity would be managed.

Fitch rates the general revenue bonds of UNC-CH 'AAA' with a Stable Outlook. For more information on the long-term ratings, see Fitch's press release of Sept. 16, 2014, 'Fitch Rates University of North Carolina at Chapel Hill's Ser 2014 Revs 'AAA'; Outlook Stable,' available at www.fitchratings.com.