Carolina notches triple play with triple-A bond rating
The University’s efforts to rein in its structural deficit, mitigate shortfalls resulting from the COVID-19 pandemic and centralize budgeting helped bolster the rating.
At a time when many of America’s public universities are facing financial challenges, Carolina retained its top bond rating last week across all three major rating agencies. UNC-Chapel Hill is the only UNC System institution to earn that claim, and it comes at a critical time — as the University issues approximately $328 million in bonds to restructure existing debt and fund capital projects on campus.
All three rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — granted Carolina a triple-A rating, the highest possible. Similar to an individual’s credit score, the rating helps the University secure low interest rates when taking on or refinancing debt.
“This makes the cost of borrowing as low as possible,” Vice Chancellor for Finance and Operations Nate Knuffman said. “Obviously, that is critical for future plans, and many universities will be in much different positions.”
In evaluating the University’s finances, ratings agencies look at everything from student enrollment to existing debt to donor support to leadership.
“We consider university management and governance to be highly capable, with considerable expertise and experience to manage the complex nature of the university,” Standard & Poor’s wrote in its report.
The University’s efforts to rein in its structural deficit, mitigate shortfalls resulting from the COVID-19 pandemic and centralize budgeting helped bolster the rating, Knuffman said.
“This underscores why budget discipline and management is so important,” Knuffman said. “And it’s evidence that the work we’ve done over the past year is paying off. Fixing our budget required campus buy-in and action, and our community has responded commendably.”
“I want to thank our deans and unit leaders for their hard work and sacrifice that has enabled us to develop a sustainable budget,” Chancellor Kevin M. Guskiewicz said. “I’m grateful to Nate Knuffman and his team in these efforts and for helping us achieve a top bond rating. We can now look to the future with confidence and a strong financial footing.”
The triple-A rating “reflects expectations of continued strength in research and student demand, combined with strong operating support from the state,” Moody’s wrote in a financial analysis. “The outlook also incorporates expectations of measured improvements in operating performance and cash flow generation and unrestricted liquidity with limited increases in total debt.”
Carolina “has meaningful flexibility to address capital needs, including from fundraising and state support, as well as additional debt capacity at its current rating,” Fitch Ratings wrote in its report.
It is common for universities to use bonds to finance capital projects. At Carolina, for example, bonds were used to finance parking decks, athletic facilities and research labs. The latest round of bonds includes funds to update the Morehead Chemistry Labs and complete deferred maintenance projects.
Read more stories in the Behind the Numbers series, which takes an in-depth look at the figures and policies that make up Carolina’s finances.