Fitch Affirms Ohio State Univ $1.10B Gen Recpt Bonds at 'AA'; Outlook Stable.

NEW YORK -- Fitch Ratings affirms the rating on $614.8 million of Ohio State University (OSU) general receipts long-term bonds at 'AA'. The Rating Outlook is Stable.

In addition, Fitch affirms the rating on $491.5 million of the university's variable-rate demand general receipts bonds at 'AA/F1+'. The short-term 'F1+' rating reflects the university's strong and sufficiently liquid balances. As of December 31, 2006, the university identified $598 million of operating funds that are invested in fixed income securities available in the event of a failed remarketing. In addition, the university has $467 million of fixed income investments held by the endowment that would be available if needed. Fitch's analysis of the investments, which included a 10% discount of operating funds with maturities greater than one year and a 50% discount of endowment fixed income investments, reflects sufficient coverage on the $542 million of outstanding variable-rate demand bonds, and the $107 million of authorized commercial paper (CP). Fitch also reviewed the university's procedures for liquidating securities in the event of a failed remarketing and believes that the notification procedures are adequate.

The 'AA' rating is based on Ohio State University's position as the state's flagship and premier research institution, positive financial operations, its diversified revenues, and stable enrollment. The primary credit risk is OSU's plan to issue up to $1.5 billion of additional debt over the next six years. While the university's debt levels will increase, Fitch expects the debt burden to remain manageable.

Historically, OSU's consolidated financial results have been break-even. However, in fiscal 2005 and fiscal 2006 operations generated healthy margins at 3.3% and 2.5%, respectively. Management is projecting similar results for fiscal 2007. The university's revenues are diversified, with health system revenues representing the largest funding source at 42% for fiscal 2006. After experiencing operating losses in fiscal 2000 and fiscal 2001, the health system's operating margins have been positive since fiscal 2002 and ended fiscal 2006 with a 6.4% margin. Management is projecting another year of positive performance for the health system with a 6% margin for fiscal 2007. Tuition and fees are now OSU's second largest revenue source, representing 16% of revenue, followed by state appropriations for operations at 13% of revenues. Between fiscal 2002 through fiscal 2004, OSU largely offset cuts in state funding with sizable double-digit annual increases in tuition. These increases did not adversely affect enrollment. OSU received a 3% increase in state funding for operations in fiscal 2006 and management reports a modest increase for fiscal 2007.

Liquidity, as measured by cash and investments that are not restricted, equals 35% of expenses and 72% of debt (including the expected issuance of $500 million of bonds for fall 2007). While OSU's liquidity remains below Fitch's medians for the 'AA' category of 47% and 140%, Fitch recognizes that OSU's demonstrates significant strengths in other areas which offset some of the liquidity concerns. However, Fitch does expect management to prudently grow revenues and liquidity levels in future years. Maximum annual debt service as a percentage of revenues is a manageable at 2.6%.

OSU's main campus is located in Columbus, Ohio and enrolled 87% of the fall 2006 enrollment. Other campuses in the state are located in Lima, Mansfield, Marion, Newark, and Wooster. OSU's fall 2006 headcount of 59,091 has experienced slight growth of 2% over the past five years. Over the last five years, enrollment at OSU's extended campuses has declined, from 7,595 in fall 2002 to 7,283 in fall 2006, while enrollment at the Columbus campus has increased.

Fitch affirms the long term rating on the following outstanding general receipts bonds at 'AA':

-- $10,885,000 series 1999A;

-- $126,885,000 series 2002A;

-- $171,090,000 series 2003B;

-- $267,125,000 series 2005A.

Fitch affirms the ratings on the following outstanding variable-rate demand general receipts bonds at 'AA/F1+':

-- $39,540,000 series 1997;

-- $56,300,000 series 1999B1;

-- $4,300,000 series 1999B2;

-- $76,950,000 series 2001;

-- $113,355,000 series 2003C;

--$128,990,000 series 2005B.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.