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Date: Nov. 6, 2002
From: James D. Plummer, Interim Vice President for Finance
RE: University Maintains High Bond Ratings

The University of Cincinnati received good news yesterday. Despite budget problems throughout the State of Ohio, both Moody's and Standard & Poor's affirmed the University's bond ratings of Aa3 and AA respectively, in conjunction with $20 million of refinancing bonds to be issued this week. The good news, in short, is that our ratings did not drop. Our current ratings have a positive impact on the university's budget.

Positive factors cited by the rating agencies include:

* stable enrollment, with improved yield on a lower number of applications

* a strong security pledge of all unrestricted revenues except the state appropriation

* quasi-endowment funds increased by $60 million through the French bequest

Largely because of the state's predicament, the agencies affirmed our ratings "with a negative outlook," indicating that they are aware of the potential for future drops. For example, if the uncertain state budget situation results in even more cuts passed down to higher education, or as significant amounts of the university's prospective debt actually gets issued creating a higher debt burden without corresponding revenue increases, the stage has been set for the agencies to change our rating. I should note that, even if our ratings drop back to A1 and AA-, those are still good, investment-quality bond ratings.

Moody's upgraded the university from A1 to Aa3 in December 1999, and S&P upgraded the university from AA- to AA in August, 1997. UC had a "stable" outlook, until last spring when both agencies changed the outlook to "negative," primarily citing the state budget environment. We are working hard to continue presenting the best case to the agencies, and I am very glad we came through this rating with current ratings affirmed. Still, we must work diligently over the next year to preserve our ratings in the next review.

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