Fitch Rates Univ. of Texas System $900MM Revs 'AAA'.

NEW YORK -- The Board of Regents of The University of Texas System's revenue financing system (RFS) bonds, series 2006C thru 2006F in an aggregate amount up to $900 million are rated 'AAA' by Fitch.

Fitch also affirms the 'AAA' rating on The University of Texas System's (UT) outstanding parity bonds (listed below) 'AAA/F1+' rating on the series 2001A variable-rate demand bonds (VRDBs), and the 'F1+' rating on UT's $750 million tax-exempt commercial paper(CP) notes, series A program and $50 million taxable commercial paper notes, series B program. The series 2006C thru 2006F bonds are expected to sell on or about Nov. 28, 2006 through negotiation by JPMorgan and Goldman Sachs. The Outlook is Stable.

Proceeds of the series 2006C and 2006D bonds will be used to advance refund all or a portion of various outstanding RFS series bonds. Proceeds of the series 2006E and 2006F bonds will be used to refund approximately $300 million of outstanding tax-exempt commercial paper. After issuance of the series 2006E and 2006F bonds, UT expects to have $372 million of tax-exempt CP notes and $14.9 million of taxable CP outstanding.

The 'AAA' rating is supported by UT's diversified revenues, a manageable but increasing debt burden, and an experienced management team. While UT's fall 2006 enrollment of 190,826 represents a 3% growth from the prior fall semester, tuition and fee revenue generated by the enrollment represented only 8% of UT's total revenues. The four main funding sources for UT are hospital revenues (24% of total revenues); sponsored programs, largely funded by the federal government (20%); state appropriations (16%); and investment income including realized gains/losses (5%). The breadth and diversity of various funding sources was viewed as a positive in the rating process.

UT currently has $3.2 billion of RFS debt outstanding. Maximum annual debt service (MADS) of $245 million, after the issuance of the series 2006E and 2006F bonds, would consume 2.3% of fiscal 2006 revenues. Approximately one-third of the debt service is expected to be paid by like-amount increases in state appropriations. Fitch estimates that UT's debt outstanding over the next five years could double as it funds its $6.68 billion capital improvement plan (CIP). During the last year, the CIP increased by approximately 50%. The increase is largely attributed to the UT's $2.56 billion initiative to boost the state's competitiveness in science, technology, engineering and health. Funding for approximately 56% of the CIP has been identified as RFS debt. Fitch believes that UT's debt burden could double without a negative impact on the rating as long as research funding levels are maintained and there are no significant changes in federal reimbursement rates for the hospitals.

Management of UT's debt programs reflects a staff of individuals with experience in higher education, finance and project management. Management of UT's investments is handled by UTIMCO, a 501(c)(3) corporation that was created in 1996 for the specific purpose of managing UT's investments. Recently, UTIMCO's chief executive officer resigned; a national search is underway to replace the CEO. During the interim, UTIMCO is being managed by an experienced executive staff member who was one of the founding members of UTIMCO.

The 'F1+' rating affirmation is based on UT's large amount of operating reserves to cover tenders in the event of an unsuccessful remarketing. As of Aug. 31, 2006, UT's investments of $1.28 billion in the short-term fund (STF) and $3.05 billion in the intermediate term fund were identified as the primary liquidity source for the RFS commercial paper and series 2001A VRDBs. The STF was invested in a highly-rated, open-end institutional money market fund. Liquidity levels provide ample coverage of UT's $683.8 million of short term debt outstanding as of Aug. 31, 2006.

The following outstanding Board of Regents of the University of Texas System revenue financing system debt are affirmed by Fitch:

--Series 1995A at 'AAA';

--Series 1998A at 'AAA';

--Series 1998B at 'AAA';

--Series 1998C at 'AAA';

--Series 1998D at 'AAA';

--Series 1999A at 'AAA';

--Series 1999B at 'AAA';

--Series 2001A at 'AAA/F1+';

--Series 2001B at 'AAA';

--Series 2001C at 'AAA';

--Series 2002A at 'AAA';

--Series 2002B at 'AAA';

--Series 2003A at 'AAA';

--Series 2003B at 'AAA';

--Series 2004A at 'AAA';

--Series 2004B at 'AAA';

--Series 2004C at 'AAA';

--Series 2004D at 'AAA';

--Series 2006A at 'AAA';

--Series 2006B at 'AAA'.

In addition, Fitch also affirms the following UT commercial paper programs:

-- Tax exempt series A at 'F1+';

--Taxable series B at'F1+'.

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.