University of California Credit Is Downgraded by Moody’s

The credit rating of the University of California, the biggest U.S. system combining education, research and health care, was cut one level by Moody’s Investors Service on rising debt and reduced state support.

Moody’s lowered its rating to Aa2, third highest, and assigned the same grade to $950 million in revenue bonds scheduled to be sold April 3. The downgrade yesterday affects $18.5 billion in debt for the university system, which operates 10 campuses and five hospitals. The outlook is stable.

The university, which Moody’s said had total system revenue of almost $24 billion in fiscal 2013, relies on the state for about 10 percent of its budget. State funding has declined about 25 percent over the past five years when adjusted for inflation, said Dianne Klein, a university spokeswoman.

“We don’t anticipate significantly higher borrowing costs,” Klein said of the lower rating. “The University of California is not unique in the higher education sector.”

In addition to “inconsistent” state funding, the university faces rising costs for debt service, employee pensions and retiree health care, Moody’s analyst Edith Behr said in a report. The university’s debt doubled in the last eight years, she said.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Pete Young, Jeffrey Taylor

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