OREANDA-NEWS. Fitch Ratings has assigned an 'AA' to the following bonds issued by the Board of Regents of the University of North Texas System (UNTS):

--\\$146.4 million revenue financing system refunding and improvement bonds, series 2015A;
--\\$75.7 million revenue financing system refunding bonds, taxable series 2015B.

Proceeds will fund capital improvements, advance refund a portion of the 2007 bonds, refund the series 2014 bonds, refund a portion of outstanding commercial paper notes, and pay costs of issuance. The bonds are expected to sell via negotiation the week of Sept. 28.

In addition, Fitch affirms the following UNTS ratings:

--\\$330.6 million revenue financing system (RFS) bonds at 'AA';
--\\$100 million tax-exempt and taxable commercial paper (CP) program at 'F1+'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The RFS bonds are secured by all legally available revenues, funds, and balances of the system. Pledged revenues exclude state appropriations and other restricted funds. The CP notes are on parity.

KEY RATING DRIVERS

OUTLOOK CONCERNS RESOLVED: The Stable Outlook reflects improvement in UNTS' financial performance and successful resolution of an investigation into overfunding of state benefits. A now-stable management team has led a system-wide overhaul of financial practices, systems, and controls. Fitch expects operating results to remain balanced on a GAAP basis.

HEALTHY DEMAND AND ENROLLMENT: UNT maintains healthy demand and enrollment trends, reflecting its position in the growing Dallas-Fort Worth area and greater North Texas region. The system is somewhat diversified, with different missions and offerings at its three component institutions.

SOUND BALANCE SHEET: The system's balance sheet resources are sound and in line with 'AA' category peers. The 'F1+' rating is based on UNTS' sound financial profile and its ability to cover the maximum potential liquidity demands presented by its CP program by at least 1.25x from internal resources.

GROWING BUT MANAGEABLE DEBT: UNTS' debt load is currently moderate but is expected to grow over the next five years. However, a significant portion of anticipated debt over that period is expected to be supported by tuition revenue bond (TRB) appropriations (State of Texas 'AAA'/Outlook Stable).

RATING SENSITIVITIES

MARGIN EROSION: Fitch expects the University of North Texas System's improved financial planning and favorable revenue trends to result in balanced system-wide operations, which are necessary to maintain the current rating level.

BALANCE SHEET RESOURCES: Material draw-downs of reserves or additional debt beyond currently contemplated amounts could weaken balance sheet ratios and negatively pressure the ratings.

CREDIT PROFILE

UNTS is a public university system serving the growing North Texas region. The system serves over 40,000 students and consists of the University of North Texas at Denton (UNT-Denton); University of North Texas at Dallas (UNT-Dallas); University of North Texas Health Science Center at Fort Worth (UNT-HSC); and the System Administration.

STATE FUNDING ISSUE RESOLVED FAVORABLY

The Stable Outlook reflects favorable treatment of a state benefits funding issue. UNT-Denton had received benefits funding from the state through fiscal 2012 including for ineligible expenses; the university was facing potentially significant repayment liabilities. However, the state 2016-2017 biennium budget limited the university's obligation to audit such benefit reimbursements to the fiscal year 2012-2014 period. Completion of an internal audit satisfied legislative requirements, and UNT-Denton's voluntary repayment of \\$4.7 million in early 2015 is expected to eliminate further liability. Overpayments were initially identified and reported by the university to the state.

IMPROVED FINANCIAL CONTROLS

Management has stabilized after significant turnover in senior financial positions in the past two years, some of which was related to state overfunding issues. Fitch believes the current management team handled the situation well and addressed immediate deficiencies. The system has invested heavily in overhauling the system's technology, personnel and policies. Management reports significantly improved internal controls and financial planning.

POSITIVE OPERATIONS

UNTS returned to a system-wide surplus in fiscal 2014, generating a 3.7% operating margin on a GAAP basis. Increased state appropriations and continued net tuition growth drove improvement over fiscal 2013 breakeven results. Fitch expects UNTS to continue to generate at least balanced operating results. For the coming biennium, positive operations should be supported by improved state operating support, enrollment and net tuition growth, and improved budgeting and financial planning practices.

HEALTHY DEMAND AND ENROLLMENT TRENDS

System-wide headcount increased 2.7% year-over-year to 42,084 in fall 2015 (preliminary) led by strong growth at UNT-Denton (88% of total). FTE increased 5.4% to 34,362 over the same period. UNT-Dallas and UNT-HSC both grew measurably due to program expansions and additions, including formal assumption of the college of law by UNT-Dallas. Admissions statistics remain healthy.

The system has a favorable regional market position based on its presence in the large and growing Dallas-Fort Worth metropolitan area and North Texas region generally. Offerings are diversified by virtue of its component institutions, which have different missions, programs and student segments. Supportive demographic trends and expansion of the system's regional role is expected to sustain healthy demand and enrollment trends.

SOUND BALANCE SHEET

UNTS' balance sheet resources continue to improve, with available funds (cash and investments less non-expendable restricted net assets) growing 11.5% from the prior year to \\$472.6 million as of Aug. 31, 2014. Fitch's calculation of available funds includes \\$140 million of UNTS' long-term non-endowment investments managed by its foundation and excludes \\$57 million of state capital money classified as unrestricted. UNTS' available funds equaled 53.8% of fiscal 2014 operating expenses and 79.8% of pro forma debt, which are sound and in line with rating category averages.

The 'F1+' rating is based on UNT's sound financial profile and its ability to cover the maximum potential liquidity demands presented by its CP program by at least 1.25x from internal resources. As of June 30, 2015 (unaudited), UNTS' available liquid resources of \\$179.6 million, consisting mainly of money market funds and local government investment pools, covered its \\$100 million maximum CP authorization by a solid 1.8x. UNTS has no bank liquidity facilities supporting the program but maintains procedures to ensure proper redemption of maturing CP.

GROWING BUT MANAGEABLE DEBT LOAD

UNTS' debt load is currently moderate. Pro forma MADS (\\$53.1 million, occurring in 2017) is equal to 5.8% of fiscal 2014 operating revenues, and fiscal 2014 operations generated solid 2x MADS coverage. The system's debt and carrying costs will grow over the medium term due to sizeable capital plans; UNTS preliminarily expects total debt to peak around \\$800 million. However, a significant portion of anticipated debt (approx. 40%) over that period is expected to be supported by state (TRB) appropriations.

At this time, Fitch expects currently contemplated debt and capital plans to remain manageable at the current rating level due to a conservative (fixed-rate, front-loaded) debt structure, strong state support, and balanced operations.