Fitch Ratings Affirms University of Maine System 'A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 31, 2002

Fitch Ratings affirms the 'A+' rating on approximately $85.6 million of outstanding University of Maine System (UMS) revenue bonds, series 1993A&B, 1998A and 2000A. Fitch was not asked to assign a rating to the upcoming sale of approximately $45 million of series 2002 revenue bonds but did incorporate the additional debt in its analysis.

The 'A+' rating is primarily based on the UMS's consistent operating performance, a low debt burden, and stable growth in enrollment. UMS's operating performance has been positive over the past five years, with the operating margin averaging 3.3%. UMS's debt burden remains low with annual debt service, including an estimated $3.3 million for the series 2002 bonds, representing only 2.9% of fiscal 2001 unrestricted current fund revenues of $373.5 million. Enrollment growth over the past five years has been 9.8% with fall 2001's headcount enrollment reaching 32,955 students. However, future growth will likely be more limited due to a projected decrease in the number of high school graduates through 2011.

The two primary credit risks of UMS is its limited liquidity and its heavy reliance on state funding at a time when there are state budget shortfalls. Liquidity, as measured by the amount of unrestricted cash and investments, has on the average for the past five years been sufficient to cover approximately two months of unrestricted operating expenses. This coverage is low but not unlike other public universities rated in the 'A' category. However, the liquidity is a concern when viewed with UMS's ability to absorb potential funding cuts from the state. Approximately 45% of UMS's funding for current unrestricted expenses is from state appropriations. Although UMS's state funding was not cut for fiscal 2002, which ends June 30, 2002, current state budget indicators reflect a 2% decline in state appropriations or approximately $3.5 million reduction for fiscal 2003. Fitch believes UMS could absorb a 2% decline in funding but a greater percentage or prolonged funding declines would have a negative impact on UMS unless operating expenses were reduced or alternative funding sources were identified.

The University of Maine was established in 1865 as the land-grant college of the State under the Morrill Act of 1862. The University of Maine was designated as a part of a system in 1986 and includes all public institutions of higher education in Maine except for the Maine Maritime Academy and the state's seven technical colleges.