MOODY'S ASSIGNS A1 LONG TERM RATING TO UNIVERSITY OF ALASKA'S $32.71 MILLION GENERAL REVENUE BOND ISSUE; OUTLOOK STABLE

A1 RATING AFFIRMED ON $36.20 MILLION PARITY BONDS, FOR A TOTAL OF $68.9 MILLION RATED DEBT

University of Alaska Higher Education Alaska

Moody's Rating

Issue General Revenue Bonds, 2002 Series K Sale Amount Expected Sale Date Rating Description

$32,705,000 07/12/02 Higher Education Revenue

Rating A1

NEW YORK, July 9, 2002 -- Moody's Investors Service has assigned an A1 long term debt rating to the University of Alaska's $32.71 million General Revenue Bonds, 2002 Series K. Proceeds of the bond issue will be used to: (1) fund part of the costs of the acquisition, construction and improvements of the University of Alaska Anchorage Community and Technical College Center, the Juneau Readiness Center / UAS Joint Facility, and Fairbanks West Ridge Research Building; (2) redeem a portion of the 1992 Series C Bonds and all of the outstanding 1999 Series I Bonds; (3) make a deposit into the Reserve Fund and pay a portion of interest through October 1, 2003; and (4) pay for issuance costs of the bonds. The rating, which carries a stable outlook, is based on the University's:

• dominant market position as sole public higher education provider for the state, providing a stable enrollment base;
• balanced operations, funded predominately from state appropriations;
• moderate financial reserves providing adequate coverage of debt levels.

Moody's has also affirmed the A1 ratings on the University's parity bonds -- Series C, F, G, H and J in the aggregate outstanding amount of $36 million.

DOMINANT MARKET POSITION AS SOLE PUBLIC HIGHER EDUCATION PROVIDER FOR THE STATE, PROVIDING A STABLE ENROLLMENT BASE:

We believe that as the sole public higher education provider for a geographically remote state, as well as the flagship and land grant university for the state, the University of Alaska's (UA) fundamental market position represents a primary credit strength for the University. In the state, more students are graduating from high school and entering colleges or universities. However, of the high school graduates, 60% choose to leave

Alaska to attend higher education institutions in the Lower 48 states, often not returning after college graduation. Although the vast majority (90%) of UA students are state residents, the University is trying to improve the share of enrolling first-time freshmen. One strategy that has been employed is the Alaska Scholars Program (ASP), a program that offers an $11,000 scholarship to the top 10% of the graduates from qualified Alaska high schools each year. The ASP has been successful, with a total of over 800 enrolled students attributable to the program.

Total enrollment has slightly increased to 15,374 in 2001 from 14,784 in 1999 (up 4%), and is expected to continue to show small increases. The enrollment is primarily comprised of undergraduates distributed throughout Alaska among the University's three urban campuses (Fairbanks, Anchorage, Juneau) as well as nine rural campuses. Each of the University's three urban campuses operate distinct academic programs, many of which have been developed to meet the needs of the surrounding region. We believe that enrollment will continue to show small increases as the University works to increase its share of high school graduates, as well as the non-traditional students.

In 1999, a new president assumed responsibility and has built a new management team. The president and his administrative team have lead the University to reexamine its mission and strategic goals, including the expansion of its curriculum to attract more traditional-aged Alaskan high school graduates. In addition, the University is strengthening its relationship with the state - the governor, the legislature, and those agencies seeking to build up Alaska's economy, including diversifying and developing Alaska's revenue sources. This partnership of supporting economic development in the state, with its unique role as the flagship university for the state, should help ensure longer-term state support for UA despite state budget constraints.

BALANCED OPERATIONS, FUNDED PREDOMINATELY FROM STATE APPROPRIATIONS:

Annual appropriations from the State of Alaska (Aa2 general obligation debt rating with a stable outlook) comprise a significant portion of University operating revenues (46%) and serve as the primary funding source of capital construction and renovation for the system. Peak debt service coverage comprised only 2% of 2002 operations and was covered 1.0 times from current funds' operating net revenue. State operating appropriations of nearly $12,800 per student are relatively large and had been relatively stagnant in nominal dollars during much of the 1990's. Recently, however, although the state has operated with budget deficits for six of the past eight years, it has increased its operating appropriations to the University each year since 1999, appropriating $201 million in FY 2002, up nearly 6% from $190 million in FY 2001. The governor signed the state budget for FY 2003 providing for increases of 5% in operating appropriations to $211 million. As to capital appropriations, the state has also provided favorable funding, totaling over $157 million in the years 1999 - 2002. In addition, the State of Alaska is seeking voter approval of a $230 million bond issue in the November 2002 election, of which $61 million is targeted for the University.

Given the state's budget situation of operating with deficits and relying on other funds (e.g. the Permanent Fund) to fill the gap, as well as the decreasing amount of oil-related revenues coming to the state, Moody's does not expect state funding to continue at recent levels in the longer-term. However, we believe that the UA will continue to receive healthy operating and capital appropriations into the medium term, although possibly at slightly lower levels.

Net tuition and fees (over $2,900 per student) provides only 10% of operating revenue. Research grants and contracts comprise another 17% of operating revenue and have increased significantly in recent years - up to $118 million in 2001 from $89 million in 1999 (net of student aid). One goal of the new President is to increase research funding and the construction of the new facility in Fairbanks should help by providing new space and labs to further encourage research activity. The University's research funding is expected to continue to increase at moderate levels given the unique geophysical and marine science research locations within and off the shores of Alaska.

Regarding overall operating performance, Moody's expects UA to continue to generate modest operating margins in the medium-term with continued state support and modestly growing enrollment. Although the University's tuition levels are relatively affordable, we believe it would be difficult to raise state tuition significantly, given student financial needs and the University's mission to remain accessible. Under state law, an out-of-state resident who resides in Alaska for one year becomes a resident and is qualified to receive the annual State Permanent Fund dividend from the state (over $1,850 in 2001). The University has maintained the policy that such students should receive in-state tuition. Until a policy change is made and tested, we believe the University has little pricing flexibility for out-of-state tuition fees.

BALANCE SHEET PROVIDES SATISFACTORY DEBT CUSHION AND FEATURES LARGE REAL ESTATE INVESTMENTS:

Moody's believes the University of Alaska's balance sheet cushion will continue to provide a good level of bondholder security. Total financial resources exceed $289 million, including $102 million hold by the UA's affiliated fundraising foundation. The resources cover the proforma debt of $119 million (which includes a $16.3 million lease obligation in connection with its IARC research center) by 2.4 times, with 2001 expendable resources cushioning the proforma debt by a very solid 1.1 times. Expendable resources held by the University would enable it to fund operations for nearly 5 months.

The University of Alaska has historically not concentrated on building a significant base of private philanthropic support, not unusual given both the relative newness of the state and that only in the late 1970's did personal income begin to increase significantly for Alaskan residents. UA has conducted successful fundraising activities through its foundation and has recently moved to consolidate and improve its alumni databases for the consideration of and launching of future capital campaigns. In addition, the UA Foundation receives annually 30% of state-mandated oil company donations that are to be paid to Alaskan charitable organizations. The donation given to the Foundation in 2001 totaled over $6 million, which included $2 million of pledges that could have been recorded in fiscal 2000. It is expected that the oil-company grant, which is unrestricted revenue for the UA Foundation, will be at least $4 million for fiscal 2002.

OUTLOOK:

Moody's stable outlook for University of Alaska's rating anticipates stable to modestly increasing enrollment, moderate operating margins, solid debt service coverage, and capital outlays managed within funding levels provided by the state over the next few years.

CONTACTS:

University of Alaska: Joseph M. Beedle, Vice President for Finance, 907-474-7448; John L. Dickinson, Assistant Vice President for Finance, 907-474-5012

Underwriter: Daniel M. Kaplan, Kaplan Financial Consulting, 773-274-5510

KEY DATA AND RATIOS (Fiscal year 2001 financial results; Fall 2001 enrollment):

Total FTE Enrollment: 15,374

Total Pro-forma Debt: $119 million

Expendable Resources to Debt: 1.1 times

Expendable Resources to Operations: 5 months

Total Resources per Student: $18,826

Share of Operations Funded by the State: 46%

Operating Margin: 0.4%

ANALYSTS:

Diane F. Viacava, Analyst, Public Finance Group, Moody's Investors Service Maura Flood, Backup Analyst, Public Finance Group, Moody's Investors Service

CONTACTS:

Journalists: (212) 553-0376 Research Clients: (212) 553-1625