Fitch Affs the University of Chicago, IL at 'AA+/F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 10, 2003

Fitch Ratings affirms the 'AA+' rating on $200 million in outstanding fixed rate Illinois Educational Facilities Authority (IEFA) revenue bonds series 1998A and 2001A, and on $190.5 million in outstanding variable-rate IEFA revenue bonds series 1998B, 2001B-1 and 2001B-2. Fitch Ratings also affirms the 'AA+/F1+' rating on $75 million in IEFA variable-rate bonds series 2001 B-3. The Rating Outlook is Stable.

The 'AA+' rating reflects the University of Chicago's (the university) stable operating performance and strong balance sheet, as well as its reputation as one of the world's leading universities for graduate and professional study. The university has maintained steady operating performance over the past five years. The university's unrestricted operating margin has averaged 2% since 1998, and was 4.8% in 2002. A key factor to the university's consistent operations has been its diverse revenue stream. As of FY2002, tuition represented 28% of unrestricted revenue. Other significant revenue sources include government gifts grants and contracts (20%) and annual disbursements from the university endowment (12%).

The university's substantial liquidity, as measured by unrestricted and temporarily restricted cash and investments, reflected a FY2002 market value of $2.9 billion. This level of liquidity is sufficient to cover the university's $686.6 million in total debt 4.2 times (x). In addition, 2002 net available revenues covered the university's $26.7 million in annual debt service 5.1x. The university has identified capital projects under its current Master Plan, which pending board approval, call for $200 million in additional debt in the next one to two years. Fitch believes that current university resources should support this additional debt.

The university continues to attract significant levels of research funding and top level faculty, as evidenced by the six tenured Nobel Laureates on staff in 2002. Student demand, stemming from the university's academic reputation, is extremely high. Fall 2002 acceptance rates at the university's various graduate schools ranged from 4% to 28%. Of those accepted, 40%-45% tend to matriculate. There has also been an increasingly positive trend in demand for the university's undergraduate college, as applications have increased 47% since 1998.

The short-term 'F1+' rating reflects the university's strong and sufficiently liquid balances. As of June 30, 2002 the university has identified $882 million in cash and fixed-income securities available in the event of a failed remarketing. While the level of cash and fixed-income investments may vary during the year, the level will be maintained with at least $75 million to meet the par amount of the series 2001B-3 bonds.

Concerns center on the expected decline in future endowment payout, on the high level of tuition discounting, and on the challenges of conducting a large campaign in the current economic climate. The university currently pays out 5% of a 12 quarter moving average of its endowment, which equated to $146.7 million in 2002. To compensate for future market fluctuation the university is considering utilizing a variable payout rate where management may elect to payout between 4% and 6% of a prior 12 quarter moving average. The university currently discounts its tuition 40% to its students via grants and financial aid, which is above the national average of 38% and also above the discount rate for some of its peer institutions. Fitch attributes this higher discount in part to the university's predominantly graduate population, who typically receive more grant and research funding than undergraduate students. The university is currently in the midst of a $2 billion capital campaign set to end in 2006. Approximately half of the funds are raised to date. The university's last campaign ended in 1996 and was successful in meeting its $676 million goal.

The university also owns the University of Chicago Medical Center, which consists of the Pritzker School of Medicine, the division of Biological Sciences and the University of Chicago Hospitals. Though the university maintains ownership of the hospital and appoints its board, the university has leased operation of the medical center to the hospital. The lease is due to expire in 2027 and may only be terminated early by the university. The university would only be responsible for hospital loans and obligations should the hospital default on any operating or loan agreements. Fitch believes that such a default is unlikely. The hospital has consistently shown positive operating margins and has sufficient cash on hand to support existing operations.

The university was founded in 1891 and currently occupies a 190-acre campus in the Hyde Park-South Kenwood section of Chicago. The university consists of the undergraduate college; the graduate divisions of Biological Sciences, Humanities, Physical Sciences, Humanities, Physical Sciences, and Social Sciences, and six graduate professional schools - The Graduate School of Business, the Divinity School, the Law School, the Pritzker School of Medicine, the Irving B. Harris Graduate School of Public Policy Studies, and the School of Social Service Administration. Current enrollment stands at approximately 13,234 students, of which 4,216 are undergraduate.