New York, November 16, 2012 --

Moody's Rating

Issue: Housing and Dining System Revenue Bonds, Series 2012; Rating: A1; Sale Amount: $30,160,000; Expected Sale Date: 11/21/2012; Rating Description: Revenue: Public University Broad Pledge

Opinion

Moody's Investors Service has assigned an A1 rating to Indiana State University's (ISU) $30.2 million of Housing and Dining System Revenue Bonds, Series 2012. At this time, we have affirmed the ratings on the university's $104.4 million of outstanding Student Fee Revenue Bonds and Housing and Dining System Revenue Bonds. The rating outlook is stable.

SUMMARY RATING RATIONALE

The A1 rating reflects ISU's growing enrollment, with increasing net tuition per student, improved cash flow from operations, strong liquidity, moderate resource levels, and good coverage of housing and dining system and student fee bond debt service from operations. These credit strengths are offset by increased debt burden, potential volatility in state funding, and low retention.

The stable outlook is based on our expectation of continued growth in total enrollment, favorable operating margins resulting in financial resource growth and ample debt service coverage of both the housing and dining system and student fee revenue bonds.

STRENGTHS

*Growing student enrollment and increasing net tuition per student at a comprehensive regional public university evidenced by fall 2012 full-time equivalent (FTE) enrollment of 10,282, up 18% over the fall 2008 FTE of 8,718 students, and net tuition per student of $6,860 in fiscal year (FY) 2012, up 33% over FY 2008 ($5,179).

*Consistently favorable operating performance with three-year fiscal year (FY) 2010 to FY 2012 average operating margin of 7.0% and FY 2012 operating cash flow margin of 19.1%, as calculated by Moody's, providing an ample 2.6 times average debt service coverage on all outstanding debt.

*Strong liquidity at 258 days, exceeds the A1 median of 132 days.

*Adequate coverage of pro-forma debt and operations with expendable financial resources of $130 million providing a cushion of pro-forma debt by 0.9 times and operations by 0.7 times.

*Successful outcomes of strategic initiatives implemented over the last five years, including a recently completed $85 million capital campaign, enrollment growth that has outpaced original goals, development of high demand programs, and upgrades to residential housing.

CHALLENGES

*High reliance on state appropriations at 36% of operating revenue in FY 2012, with limited ability to diversify revenue from student charges given political pressure to maintain competitive rates.

*Low retention rate of 61% for fall 2012, though up from 58% in fall 2011, although we note ISU is in the process of incorporating new measures to coach students for college preparedness and improve the academic quality of accepted students to complete their undergraduate education.

Outlook

The stable outlook is based on our expectation of continued growth in enrollment, favorable operating margins resulting in ample debt service coverage and improvement in financial resources, in addition to ongoing state fee-replacement appropriations supporting a portion of the university's debt.

WHAT COULD CHANGE THE RATING UP

Growth in enrollment and net tuition per student; improvement in retention rates; maintenance of favorable operating performance; improving levels of financial resources to provide a strong cushion for debt.

WHAT COULD CHANGE THE RATING DOWN

Deterioration of operating performance; weakening of student market position; reduction in state's reimbursement of debt service, lowering of the state rating

PRINCIPAL RATING METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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Mary K. Cooney AVP - Analyst Public Finance Group250 Greenwich StreetNew York, NY 10007 U.S.A. Diane F. Viacava VP - Senior Credit Officer Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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