Each of the three major rating agencies awarded Carolina its top bond rating. The University is the only UNC System institution to earn unanimous AAA ratings.
Similar to a person’s credit score, a bond rating is an evaluation of an institution’s overall credit quality and financial strength. A bond rating of AAA, the highest possible, helps the University secure lower interest rates when borrowing funds. Institutions can then issue bonds to finance facility updates, complete maintenance or invest in other capital projects on campus.
The University isn’t issuing new bonds at the moment but will remarket $250.9 million in existing, short-term debt, which is part of its $1.2 billion portfolio.
All three ratings agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — reaffirmed the AAA status with a stable outlook, citing improvements in multiple factors and underlying strengths of Carolina.
Each agency pointed to the University’s resiliency demonstrated throughout the pandemic as well as measures taken to manage the budget.
“The stable outlook reflects expectations of continued strength in research and student demand combined with strong operating support from the state,” Moody’s wrote in its analysis. “The outlook also incorporates expectations of continued gains in operating performance and cash flow generation and unrestricted liquidity with limited increases in total debt.”
The achievement follows recent news of the University’s first projected balanced all-funds budget, which Nathan Knuffman, vice chancellor for finance and operations, presented to the UNC System Board of Governors in late May.
Knuffman said key components in balancing the budget included offsetting $200 million in lost revenue due to the pandemic, eliminating a $100 million structural deficit by trimming personnel funds and creating a centralized model that incorporates all the University’s expected revenue sources and expenditures.
“Carolina’s improvements in budget and expense management have certainly helped bolster our operating performance and financial profile,” Knuffman said.
“More than two years ago, current members of the Board of Trustees placed an emphasis on fiscal stability, establishing a strong forward-looking budget and being stewards of the University’s resources,” said Board of Trustees Chair David L. Boliek Jr. “We’ve worked together with the administration to achieve these goals. The ratings are a testament to establishing trust in the University’s ability to drive North Carolina’s future.”
In its report, Standard & Poor’s said Carolina’s “extremely strong” enterprise profile was characterized by “national draw and broad appeal, coupled with stable enrollment, excellent demand, and robust student-quality metrics.”
“The rating also reflects a higher education governance structure that, at both the university and state levels, has demonstrated an ability to manage the budget so that it provides sufficient support and long-term stability for higher education,” Standard and Poor’s continued in its report, also citing Carolina’s “very strong” financial profile with “historically positive operating performance, solid cash and investments relative to debt, and strong revenue diversity.”
Fitch Ratings said its rating reflects Carolina’s “status as the state’s flagship public research university, exceptional demand characteristics including very high student quality and selectivity, and very strong financial profile.” The agency also credited the University’s “robust fundraising, resilient and sizable clinical and research platform and steady state support.”
“This achievement is a testament to the hard work of our deans and unit leaders, especially Nate Knuffman and his team in Finance and Operations and with the important consultation of our Board of Trustees, in establishing a balanced budget,” Chancellor Kevin M. Guskiewicz said. “The unanimous vote of confidence from the top ratings agencies is further proof that the University is on firm financial footing. We will continue to invest in the future of this University and our mission of teaching, research and service with confidence.”
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.