Fitch Ratings has assigned an 'AA+' rating to the following university enterprise refunding revenue bonds issued by the Regents of the University of Colorado (CU):

--$85.4 million, series 2015A;

--$3.9 million, series 2015B.

The bonds are expected to price via negotiation the week of Jan. 12, 2015. Bond proceeds will be used to refund outstanding series 2005A, 2005B, 2006A, and 2009A bonds for savings.

In addition, Fitch has affirmed the 'AA+' rating on CU's approximately $1.6 billion of outstanding revenue bonds. Fitch has also withdrawn the 'AA+' rating assigned to the series 2013C bonds in September 2013, as the university did not issue the debt.

The Rating Outlook is Stable.

SECURITY

The bonds are a special limited obligation secured by and payable from a pledge of university net revenues. Pledged revenues consist primarily of auxiliary revenues, indirect cost recovery revenues, student fees, a portion (10%) of tuition revenues, and other self-funded and research related services. Pledged revenues exclude state appropriations.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The 'AA+' rating primarily reflects CU's solid level of balance sheet resources relative to operations and debt. A track record of breakeven to positive margins fueled by historical enrollment growth and fairly diverse revenue sources; manageable pro forma debt burden and capital plans; and significant fund-raising ability are also rating factors.

STABLE OVERALL STUDENT DEMAND: CU's prominent position as the flagship institution for higher education and research in the state of Colorado has driven steady enrollment growth over the past several years, thereby benefitting its revenue base. Continued undergraduate student enrollment growth has offset uneven graduate enrollment in recent years.

MANAGEABLE CARRYING COSTS: Operating cash flows service a moderate pro forma debt burden by a comfortable margin. Net revenues pledged to university enterprise revenue bonds generally provide solid coverage of related maximum annual debt service (MADS) near 2x annually.

IMPROVING STATE SUPPORT: CU's limited reliance on the state for operating support partly mitigates concerns over its reduced level of funding since the financial crisis. Following several years of significant cuts in state funding for higher education, state appropriations increased modestly in fiscal 2014, with further increases approved in the state's enacted fiscal 2015 budget and expected in fiscal 2016.

RATING SENSITIVITIES

ENROLLMENT STABILITY: Moderating student enrollment growth, while not currently envisioned, could lead to downward rating pressure, as student-generated revenues represent CU's largest revenue source (35%).

CONTINUED BALANCE SHEET STRENGTH: Continued balance sheet strength is important to CU's overall rating stability, as potentially more variable health services revenues derived from faculty physicians and investment gains are growing contributors to net income.

CREDIT PROFILE

CU is a comprehensive graduate research university and the largest institution of higher education in Colorado, offering undergraduate, graduate, and professional programs. In addition to its main campus in Boulder, the university has campuses in Colorado Springs and Denver, as well as the Anshutz Medical Campus located in Aurora. The Anshutz campus is also home to the University of Colorado Hospital, which is a separate legal entity (rated 'AA-' with a Stable Outlook by Fitch) and CU's primary teaching hospital.

An increase in fall 2014 headcount (59,667) continues a trend of gains that should ultimately bolster tuition revenues. Total headcount was up a notable 2.6% over the prior year; this follows a 1% gain in fall 2013. Moreover, fall 2014 graduate headcount growth (2%) stemmed a three-year slide that Fitch has observed at institutions nationwide. In CU's case, most of the decline had been at its Boulder and Denver campuses. The Denver campus enrolls a large percentage of nontraditional students that tends to fluctuate with economic cyclicality.

Student selectivity and matriculation are typically below those of other similarly rated public colleges and universities. However, standardized test scores highlight a solid student population.

Evolving Operating Profile

CU continues to maintain a strong overall financial position, but trends in operating margins and balance sheet metrics are divergent. Tightening margins over several years are a noteworthy development; they remain healthy but are now at the lower end of comparably-rated institutions. Nevertheless, its robust and strengthening balance sheet should provide considerable financial cushion at the rating level.

CU's fiscal 2014 operating margin was 0.97%, as calculated by Fitch. This was down from an average of 2.62% annually since fiscal 2010. Operating expense growth has outpaced enrollment and tuition increases, expanding health services revenues derived from faculty physicians, and robust research activities. A lower level of state appropriations has likewise contributed to the margin compression. However, state funding has since begun to improve.

By contrast, CU's available funds have grown measurably to near the high end of rating category medians. Available funds (defined as cash and investments less certain restricted net assets) totaled $2.3 billion as of fiscal 2014, an increase of two thirds from fiscal 2010. The funds covered fiscal 2014 operating expenses and pro forma debt by a healthy 77.2% and 145.1%, respectively. In addition, CU benefits from the support of various 501c(3) organizations. The University of Colorado Foundation, the largest of CU's related foundations, held total cash and investments of $1.4 billion in fiscal 2014 that are not factored into CU's ratios.

Non-operating revenues, particularly investment gains, have contributed measurably to the increase in available funds. In addition, health services have become an increasingly important component of operating margins. The maintenance of a strong balance sheet will be an important rating consideration over time, as these are inherently more variable revenue sources.

Revenue Diversity Supports Financial Performance

CU's fairly diverse revenue base continues to support its track record of breakeven to positive operations that are typical of public universities. Tuition, fees, and auxiliary revenues (35%) remained CU's largest revenue source in fiscal 2014, followed by grants and contracts (27.1%), then health services revenues derived from CU's faculty physician practice (21.5%). Fiscal 2016 tuition increases are expected to remain below a 6% state cap.

CU's percentage of revenues derived from state appropriations (3.7%) is among the lowest of all Fitch-rated public colleges and universities, thereby offsetting the impact of recent general appropriation reductions. The state college opportunity fund stipend and fee-for-service contracts contribute a small portion of tuition and fee revenue in lieu of general appropriation funding. Adjusting for these items, state support is closer to approximately 5.5%, which is still quite low.

Manageable Debt Burden Supports Capital Plan

CU's debt burden remains manageable and supports financing additional capital needs, despite a gradual increase in leverage over the past few years. Pro forma MADS of about $130.8 million (2019) represents a moderate 4.3% of fiscal 2014 operating revenues. Fitch continues to recognize the strength of the revenues pledged to CU's enterprise revenue bonds. Pledged revenues totaling $292.5 million in fiscal 2014 covered pro forma MADS by a healthy 2.2x.

Based on CU's size and scale of operations, it will continue to have capital needs, portions of which will be periodically debt-financed. The university has approximately $100 million of projects planned through fiscal 2019 for academic, student-life, and athletics-related projects at its Boulder and Colorado Springs campuses. Fitch believes CU's future debt and capital plans are manageable, given the university's resource base and operating performance.

The university's somewhat front-loaded pro forma debt service schedule should also help to keep its debt burden at a manageable level going forward. Moreover, as Colorado's fiscal position continues to gradually improve, CU anticipates an increase in state capital appropriations, which will help to defray the cost of certain capital projects.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. College and University Rating Criteria' (May 2014);

--'Fitch Upgrades Univ of Colorado Health Auth & Poudre Valley Health Care (CO) Revs to 'AA-''; Outlook Stable (March 2014).

Applicable Criteria and Related Research:

U.S. College and University Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748013

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966735

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