Fitch Rates University of South Carolina Bonds 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the $47,955,000 University of South Carolina Higher Education Facilities revenue bonds 2005 refunding series A. In addition, Fitch assigns an 'AA' rating to the university's approximately $101 million in outstanding parity housing and parking revenue bonds listed below. The series 2005 bonds are scheduled to be sold on or about Sept. 8 through competitive bid. Bond proceeds will be used to refund all or a portion of the outstanding series 1995, 1996, 1997, and 2000A bonds. The Rating Outlook is Stable.

The University of South Carolina's (USC) long-term 'AA' rating reflects positive operating results, increasing enrollment, a low debt burden, and significant, although decreasing, funding from the 'AAA' rated state. USC has generated positive operating margins for fiscals 2002-2004 even though state appropriations were reduced by 24% during the period. Fitch computes the margin for fiscal 2004 to be 2.1%. USC expects the financial performance for fiscal 2005 (ended June 30) to be similar to the prior year. The consistency of operating performance given the severe cuts in state appropriations can be attributed to large tuition increases, enrollment growth and controlling expenses. Between fall 2001 and fall 2004, enrollment grew by 9% to 37,879. At the same time, undergraduate resident tuition increased by 55%. An additional increase of 12.3% for fall 2005 brings annual tuition to $3,456. USC is expecting only modest increases in future enrollment in part due to the 1% growth in the projected number of high school graduates in the state.

USC's debt burden is low. Maximum annual debt service (MADS) of $14 million would consume only 1.9% of fiscal 2004 revenues. MADS includes debt service for both the revenue bonds and the state institutional bonds. There are currently $77 million of outstanding state institutional bonds which are payable from USC tuition and are guaranteed by the state. As a result, the state institutional bonds are rated 'AAA' by Fitch.

The most significant area of concern centers on the university's low liquidity levels. Available funds totaled $152 million in fiscal 2004, which would cover 22.3% of fiscal 2004 expenses and 71.3% of outstanding debt. This level of liquidity is below Fitch's 'AA' category medians of 47% of expenses and 140% of debt. However, when comparing USC's liquidity ratios with the medians, it should be noted that a significant portion of fundraising monies are reported separately from USC's financial statements and are reported as monies of several related foundations. The foundations reported combined net assets of approximately $286 million.

Outstanding Debt as of June 30, 2005 rated 'AA':

University of South Carolina Higher Education Facilities Revenue Bonds

--$4,925,000 series 1995 (portion/all to be refunded with 2005 rfdg series A bonds);

--$21,715,000 series 1996 (portion/all to be refunded with 2005 rfdg series A bonds);

--$3,250,000 series 1997 (portion/all to be refunded with 2005 rfdg series A bonds);

--$3,925,000 series 1999A;

--$19,580,000 series 2000A (portion/all to be refunded with 2005 rfdg series A bonds);

--$5,055,000 series 2003B;

--30,175,000 series 2004A;

--12,400,000 series 2005A.

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.