Univ of Texas's Perm Univ Fund Bnd Rtd AAA by S&P.

NEW YORK--(BUSINESS WIRE)-- Standard & Poor's CreditWire 12/1/97 -- Standard & Poor's today assigned its triple-'A' rating to the University of Texas Board of Regents, Texas' permanent university fund (PUF) bonds series 1997 issued for the University of Texas. Standard & Poor's also affirmed its triple-'A' rating on the regents' permanent university fund bonds series 1988, 1991, 1992A and B, and 1996 issued for the university.

In addition, Standard & Poor's affirmed its triple-'A'/'A-1'-plus on the regents' permanent university fund variable rate notes series A.

The rating reflects:

-- The absolute size of the PUF, which had a market value of

nearly $6.4 billion at fiscal year-end 1997;

-- Excellent coverage of maximum annual debt service and

restrictive limits on the issuance of additional debt; and

-- Strong oversight and capable asset management by the

University of Texas Management Co. (UTIMCO).

Bond proceeds will refund $80 million of outstanding PUF variable rate notes series A and provide $50 million in funds for capital projects. The bonds are secured by the University of Texas System's two-thirds share of the available university fund (AUF), which is comprised of PUF investment earnings. The remaining one-third balance is dedicated to the Texas A&M University System.

The permanent university fund is one of the largest higher education endowments in the country, second to only to that held by Harvard University. Since fiscal 1992, total PUF funds (market value) have increased by 54%. Current asset allocation is 36% fixed income, 58% equities, and 6% alternative investments. The bulk of the fixed income investments are internally manged, while equities are primarily externally managed.

Pledged 1997 AUF revenues provide strong coverage of nearly 3.0 times (x) pro forma maximum annual debt service. In addition, the board must adhere to a fairly stringent constitutional debt provision that limits total debt to 20% of the book value of the PUF. At fiscal year-end 1997, this limit would have allowed for $994.9 mil. in debt. PUF corpus cannot actually be spent.

PUF funds, along with other University of Texas endowment and operating funds, are managed by a separate 501(c)3 money management company. This company, UTIMCO, is the only separately incorporated money management firm associated with a public institution of higher education and is modeled after several similar entities affiliated with private universities. Although UTIMCO is relatively young, the benefits of the company already include:

-- The addition of board members with extensive investment

experience;

-- A streamlined decision-making process removed from public

university bureacracy; and

-- The ability to attract professional staff.

PUF variable rate notes are issued on an interim basis to finance capital projects in advance of permanent financing. The board has authorized the issuance of up to $250 mil. in subordinate lien notes. Following the retirement of notes from series 1997 bond proceeds, there will be approximately $72 million in outstanding notes. Up to $195 million in notes are backed by a standby note purchase agreement with three banks in which each bank, acting severally but not jointly, is obligated to purchase up to $65 million of notes.

OUTLOOK: STABLE

The outlook reflects the expectation that PUF assets will continue to grow and income will provide strong coverage of debt service. UTIMCO management, along with the limited issuance of additional debt, is expected to result in an increasingly positive picture, Standard & Poor's said. -- CreditWire

CONTACT: Lisa Danzig, New York 212/208-1824

Malachy Fallon, Dallas 214/871-1402

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