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Moody's ups Duke's bond rating

Moody's Investors Service upgraded Duke1s revenue bonds rating from an outlook of stable to positive earlier this month, translating into lower costs for the University to borrow money.

Tori Nevois, assistant vice president and deputy treasurer, said the July 9 report, which gave Duke a rating of Aa1, was the first time Duke1s rating has been upgraded since it first began issuing debt. Universities often issue debt to raise funds for buildings or renovations.

Nevois gave several reasons for the upgrade, including positive operating margins, active management of Duke's debt portfolio, improvement in the Duke University Health System1s finances and Executive Vice President Tallman Trask's fiscal discipline. "It shows confidence that the rating agencies have confidence in the outlook for Duke," she said. "Raising from a stable to positive outlook is a big step."

The University's Series 2002A bonds went on sale July 10. Those bonds will provide Duke $121 million in revenue for three specific projects<the Center for Interdisciplinary Engineering, Medicine and Applied Sciences on Science Drive, a 550-space parking deck near the Bryan Center and renovations to Kilgo Quadrangle, all of which began this summer.

Moody's also affirmed an Aa1 rating on Duke's $293 million in outstanding debt.

Although Nevois could not point to a specific number, she said the new rating would mean lower borrowing costs for the University, which is in the midst of capital campaign-fueled construction.

Moody's defines the Aa rating as a high-grade bond.

"[Aa-rated bonds] are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or... there may be other elements present, which make the long-term risk appear somewhat larger than the Aaa securities," Moody's rating definition reads.

Groups like Moody's, such as Standard and Poor1s Corporation and Fitch Investors Service, L.P., assign letter-grade rankings to businesses, universities and even states and nations. Moody''s highest ranking is Aaa, followed by Aa, A and Baa. Junk bonds are ranked even lower, Ba or B, and those that are ranked even lower<Caa, Ca and C<are considered highly speculative and substantially risky investments. At each grade, Moody's also provides a rating between a high of 1 and a low of 3, and an outlook of positive, stable or negative.

Nevois said most university debt ranges from Aa3 to Aaa at the most stable schools, such as Harvard University and Yale University.

"It puts us right below them,"said Vice President for Financial Services Michael Mandl. "Frankly, if you look at the set of Aaa universities, it's a very small handful<Harvard, Princeton, Yale, Stanford. We are literally, from a bond rating standpoint, right on their heels. It's extremely strong"

Endowment size and the consistent management of past debt are components of each school's rating. Mandl said that in the last several years, Duke's endowment has grown, the University has not taken on a lot of new debt and Duke's asset growth was very strong.

Duke first turned to bonds in 1976 to build Duke North Hospital. On the University side, the first debt issued was in 1987 and included funding for the R. David Thomas Center at the Fuqua School of Business. Trask, who also serves as University Treasurer, was out of town and could not be reached for comment.

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