North Carolina Capital Facilities Fin. Agy. -- Moody's affirms Aa1, Aa1/VMIG 1, and P-1 ratings on Duke University's (NC) outstanding debt; outlook is stable

New York, November 30, 2012 -- Moody's Investors Service has affirmed the Aa1 long-term rating on Duke University's outstanding debt. The Aa1 rating applies to $1.25 billion of rated university revenue bonds. Concurrently, we have affirmed the P-1 Commercial Paper rating in conjunction with the renewal of its tax-exempt CP program, and the Aa1/VMIG 1 ratings on the Series 1987A, 1991B and 1992A bonds. The P-1 and the VMIG 1 ratings are based on Duke's own liquidity. Please refer to the RATED DEBT section below. The outlook is stable.

Unless otherwise noted, all figures and ratios refer to the consolidated audit of Duke University and the Duke University Health System (DUHS). For more information on DUHS, please see Moody's May 23, 2012 report.

SUMMARY RATING RATIONALE

The Aa1 rating incorporates the university's exceptionally strong market position, substantial balance sheet position, consistently high annual fundraising abilities, and complex investment portfolio that require substantial oversight.

The P-1 and VMIG 1 ratings reflect the university's internal liquidity and a $50 million liquidity facility with Wells Fargo Bank, N.A. (rated Aa3/P-1), which, along with the university's own cash and investments, provides adequate coverage for the tender features of the variable-rate demand bonds (all in the weekly tender mode), as well as the university's combined $500 million available under the taxable and tax-exempt commercial paper (CP) programs.

STRENGTHS

*Excellent student market position, reflected by ability to continue to grow enrollment while maintaining very strong freshman selectivity rate of 13.4% for fall 2012 and yield of 42.1%. Net tuition per student is robust at approximately $24,484.

*Diverse and comprehensive array of undergraduate and graduate programs. Market profile also includes large research enterprise with $964 million of grant and contract revenues for the university in FY 2012.

*Substantial balance sheet resources at the end of FY 2012, with total financial resources of $9.1 billion or $601,857 in resources per student.

*Superior fundraising profile with total gift revenue averaging approximately $291 million annually over the last three years (including donor support for DUHS) with a recent focus on endowed financial aid.

CHALLENGES

* Revenue concentration derived from patient care revenues which comprise one-half of total university revenues (51.9% in FY 2012). However, DUHS (rated Aa2/stable) maintains a nationally and internationally renowned clinical reputation, which is supported by its strong connection as a controlled affiliate of the university and its medical school. The DUHS hospitals benefit from attractive demographics in the primary service area comprising the Research Triangle Area of North Carolina, a 12 county region that includes Wake, Durham and Orange Counties. For more information about DUHS, please see Moody's report from May 23, 2012.

*Complex investment strategy that, while highly diversified, adds other risks, reduces liquidity and requires substantial oversight. In FY 2012, the university's investments performed well relative to peers, even with a 1% return for the year. Monthly liquidity as a percentage of total cash and investments is relatively limited at 22.8%.

*Concentration of federal research grants and contract revenue in an environment of reduced federal research funding including possible sequestration in January 2013. For the university only, almost 52.4% (or $557 million) of FY 2012's $1.06 billion of total grants and contracts revenue was derived from the federal government, of which most was from the Department of Health and Human Services. These challenges are mitigated by the university's operating flexibility to adjust costs in line with declines in contract and grant revenues, as well as management's diligent review of program operations.

Outlook

The stable outlook reflects our expectation of continued superior student demand, moderate future debt plans, continued growth of financial resources and positive operating performance.

WHAT COULD MAKE THE RATING GO UP

Substantial growth in liquid financial resources including increased philanthropy to offset increased debt, coupled with stronger operating cash flow.

WHAT COULD MAKE THE RATING GO DOWN

Reduction in cushion of financial resources relative to debt or operations or sustained deterioration in operating performance; weakened liquidity.

PRINCIPAL METHODOLOGIES USED

The methodologies used in this rating were Rating Methodology for Municipal Bonds and Commercial Paper Supported by a Borrower's Self-Liquidity published in January 2012, and 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 these methodologies.

REGULATORY DISCLOSURES

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Jenny L. Maloney Vice President - Senior Analyst Public Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Eva BogatyAsst 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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