OREANDA-NEWS. March 25, 2016. Fitch Ratings has affirmed the 'F1+' rating on \\$125 million authorized Board of Regents of the Texas A&M University System (TAMUS) Permanent University Fund (PUF) commercial paper (CP).

SECURITY

PUF CP issued by the TAMUS Board of Regents is secured by and payable from a subordinate lien and pledge of TAMUS' one-third interest in the available university fund (AUF). PUF bonds hold the senior lien. The AUF receives annual distributions from the PUF, which are required under the Texas constitution to be at least sufficient to pay debt service on outstanding PUF bonds and notes. TAMUS had \\$953 million outstanding PUF bonds as of Aug. 31, 2015, rated 'AAA' by Fitch. See 'Fitch rates Board of Regents of Texas A&M University System 2015A&B PUF Bonds 'AAA'; Outlook Stable,' dated March 25, 2015.

KEY RATING DRIVERS

SUBSTANTIAL RESOURCE BASE: The PUF's highly diversified investment holdings (\\$17.49 billion market value as of Aug. 31, 2015) supported by the expertise of the University of Texas Investment Management Company (UTIMCO), underpin the rating. This market value excludes PUF land value. Fitch views that credit risks are minimal due to constitutional debt limits and strong pro forma debt service coverage.

SUFFICIENT LIQUIDITY: The 'F1+' rating is based on highly liquid resources, provided under a liquidity agreement with UTIMCO, that are available to meet potential liquidity needs of TAMUS' PUF CP notes. Fitch's liquidity calculations include The University of Texas System's (UTS) revenue financing system and PUF CP notes and variable rate demand bonds, and TAMUS' PUF CP notes, all of which have self-liquidity provided by UTIMCO agreements.

RATING SENSITIVITIES

REDUCTION IN LIQUID INVESTMENTS: The 'F1+' rating on the Texas A&M University System's Permanent University Fund commercial paper program could be pressured by a decline in liquid investments available to cover associated securities if coverage falls below the minimum 1.25x expected by Fitch for an 'F1+' rating.

TAMUS SHORT-TERM RATING SUPPORTED BY LIQUIDITY AGREEMENT
TAMUS uses its PUF CP program to finance eligible PUF capital projects on an interim basis. There is currently no CP outstanding under the \\$125 million CP authorization, although the system may issue under the program during calendar 2016.

The TAMUS board has covenanted to provide internal liquidity support for any PUF variable rate demand bonds and CP/note programs, from legally available funds. For that purpose, TAMUS entered into a security purchase agreement with UTIMCO.

UTIMCO agrees to purchase as investments any PUF-related debt that is not renewed, remarketed or refunded. UTS has entered into a similar agreement with UTIMCO to support its obligation to provide internal liquidity for its PUF- and RFS-secured variable rate demand bonds and CP. Thus, Fitch includes both UTS and TAMUS related VRDB debt and CP authorizations in liquidity calculations. At this time, TAMUS has \\$125 million of authorized CP; it presently has no CP notes outstanding and has no PUF-secured variable rate bonds outstanding.

As of Dec. 31, 2015, the most current date available, UTIMCO identified \\$5.4 billion of funds which could be used to support TAMUS' PUF CP program (\\$125 million authorized); UTS' PUF and RFS variable rate demand bonds (\\$1.24 billion outstanding); and UTS' PUF and RFS CP programs (\\$1.75 billion RFS authorization and \\$750 million PUF authorizations). As adjusted per Fitch's criteria, highly liquid funds available daily provided liquidity coverage which exceed Fitch's expectation of 1.25x coverage for an 'F1+' rating.

TAMUS is a public university system with 11 academic institutions, seven research and service agencies and a health sciences center. Total system headcount has increased annually in recent years, and for fall 2015 was 143,441. TAMUS' flagship campus is located in College Station, Texas; it is the largest campus with a fall 2015 headcount of about 58,500. For additional information on TAMUS see 'Fitch Rates Texas A&M University System's 2016A & 2016B RFS Bonds 'AA+'; Outlook Stable', dated March 17, 2016.