Fitch Rates Massachusetts HEFA's $90MM UMass Bonds 'A+'.

NEW YORK -- Fitch Ratings assigns an underlying rating of 'A+' to the Massachusetts Health and Educational Facilities Authority's (HEFA) approximately $90 million revenue bonds, Worcester City Campus Corp. (WCCC) issue (University of Massachusetts (UMass) Project), series D (2005), which are expected to sell during the week of March 29 via negotiation with a syndicate led by Merrill Lynch. In addition, Fitch affirms the underlying 'A+' rating on outstanding parity bonds. Bond insurance by Financial Guaranty Insurance is expected. Bond proceeds will be used to refund all or a portion of the outstanding HEFA revenue bonds, Worcester City Campus Corp. issue (University of Massachusetts Project), series A (2000). The Rating Outlook is stable.

Bond payments are an absolute and unconditional obligation of WCCC pursuant to a loan and trust agreement. WCCC is a tax exempt organization created in 1992 and is considered a subsidiary of UMass. WCCC's payments are further secured by the obligation of UMass to transfer funds due under the loan and trust agreement not otherwise paid by WCCC. As a result, the 'A+' underlying rating is based primarily on UMass' credit strengths.

Credit strengths include UMass' stable student demand, positive operating performance, and growing research and fundraising efforts. Credit concerns include modest liquidity, a rising debt burden, a significant capital program, and the effects of continuing fee increases on student demand. Student headcount enrollment has declined by 2% over the past two years to 56,587 for fall 2004. During this period, average annual undergraduate resident tuition increased by 40%-50% at the various campuses. Tuition and fees represented 21.4% of fiscal 2004 revenues. Any significant decrease in enrollment could have a negative impact on revenues and on the rating.

Over fiscal years 2002-2004, UMass experienced significant state appropriation cuts. However, with fee increases and expenditure reductions, operating margins remained near or better than break-even. For fiscal 2004, the operating margin was 6%. State appropriations were 23.6% of revenues in fiscal 2004, the largest single source of revenues. After three years of funding cuts, state appropriations for fiscal 2005 are 7.3% higher than the previous fiscal year. A return to stable funding from the state is critical to the rating given the university's modest level of liquidity. Fitch estimates that the university had enough liquidity to cover 21.2%, or slightly over two months of fiscal 2004 expenses. The Fitch liquidity median for an 'A' rated public university is 37.1%.