New York, December 12, 2012 -- Moody's Investors Service has affirmed Lawrenceville School's (Lawrenceville) Aa3 long-term debt rating and Aa3/VMIG 1 ratings on the Series 1996B and 2001 bonds. The short-term VMIG 1 ratings are supported by standby bond purchase agreements (SBPA) provided by JP Morgan Chase Bank, NA effective through July 23, 2013. The rating outlook remains negative.

SUMMARY RATING RATIONALE

The Aa3 rating reflects the Lawrenceville School's healthy market position as a selective boarding and day school located near Princeton, New Jersey, strong philanthropic support, adequate expendable resource coverage of debt and operations, and no additional debt plans. The rating also incorporates higher debt burden relative to other highly rated independent schools, highly competitive market and high reliance on gifts. The negative outlook reflects the school's diminished and thin liquidity and debt service coverage coupled with a complex debt structure, as well as our expectation of narrow net tuition revenue growth, high reliance on unrestricted gifts, and slightly elevated endowment draw over the next two fiscal years that will likely continue to pressure operating performance and debt service coverage.

The Aa3/VMIG 1 ratings on the Series 1996B and 2001 bonds are derived from the credit quality of JPMorgan Chase Bank, NA (rated Aa3/P-1/stable outlook) as provider of a liquidity facility in the form of a SBPA, the long-term credit quality of the Lawrenceville School and the likelihood of an early termination of the SBPA without a final mandatory tender.

STRENGTHS

*Strong market position as a selective boarding and day school for grades 9-12 located in a suburban community near Princeton, New Jersey. The school's market strength is demonstrated by a high net tuition per student of $36,079 in fiscal year (FY) 2012 coupled with healthy selectivity of 23.3% and yield of 60.0% in fall 2012.

*Robust philanthropic support, with a three-year average annual gift revenue of $27.6 million from FY 2010-FY 2012 and is among the strongest in Moody's portfolio of Aa-rated independent schools. However, unrestricted gift revenue is relatively modest.

*Adequate coverage of debt and operations. Expendable financial resources of $123.6 million cushioned debt 2.07 times and operations 2.11 times in FY 2012 (based on draft financials).

*No future debt plans and management reports future capital projects will be funded from gifts.

*Management team committed to decreasing the school's endowment spend rate to no more than 5% and eventually eliminating supplemental draws for principal debt service payments. Management reports that the total endowment draw was 4.81% in FY 2012 compared to 6.35% in FY 2008, but will increase to 5.33% for FYs 2013 and 2014.

CHALLENGES

*Thin liquidity relative to high exposure of variable rate demand debt, representing 82% of total debt, and a single counterparty providing liquidity support. Cash and investments which could be liquidated within one month covered demand debt by just 125% in FY 2012.

*Heavy reliance on gifts, revenue highly correlated to changing economic conditions and donor preferences, requiring careful expense management and forecasting. In FY 2012 (unaudited), operating performance excluding gifts was negative 23%.

*Highly competitive environment hinders the school's ability to significantly grow revenue and manage expenses to generate healthy cash flows while at the same time investing in strategic initiatives and capital renewal. Weak operating cash flow of 9.7% led to thin debt service coverage of 1.28 times in FY 2012.

*Approximately 62% of the school's financial resources are permanently restricted, which places some constraints on financial flexibility.

OUTLOOK

The negative outlook reflects the school's diminished and thin liquidity, particularly given a debt structure with variable rate demand debt, high operating leverage and thin debt service coverage. In addition, the negative outlook incorporates more narrow net tuition revenue growth, high reliance on unrestricted gifts, and slightly elevated endowment draw over the next two fiscal years that will likely continue to pressure operating performance.

WHAT COULD CHANGE THE RATING UP

Growth of financial resources or healthier cushion of debt and operations; increase in liquidity, particularly given risks associated with debt structure; stronger operating cash flow and debt service coverage

WHAT COULD CHANGE THE RATING DOWN

Stagnant net tuition revenue growth; deterioration of financial resources or liquidity; decline in student market demand; weak gift revenue; increase in debt

The principal methodology used in this rating was Moody's Rating Approach for Independent Elementary and Secondary Schools published in January 2005. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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Erin Veronica Ortiz Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Mary CooneyAsst Vice President - Analyst 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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