1. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Copyright (c) 2006 Standard & Poor’s, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. 2008 NAHEFFA Conference Higher Education Credit Trends and Outlook Jessica Matsumori Seattle, Washington Sept 24, 2008

2. 2. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. S&P Public University Rating Distribution Public Universities - August 31, 2008 AAA 2% AA 37% A 58% BBB 3%

3. 3. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. S&P Private University Rating Distribution Private Universities - August 31, 2008 AAA 7% AA 16% A 37% BBB35% BB 5%

4. 4. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. AAA S&P College and University Ratings Private Universities Amherst College, MA California Institute of Technology, CA Columbia University, NY Dartmouth College, NH Grinnell College, IA Harvard University, MA Massachusetts Institute of Technology, MA Northwestern University, IL Pomona College, CA Princeton Theological Seminary, NJ Princeton University, NJ Private Universities, continued Rice University, TX Rockefeller University, NY Stanford University, CA Swarthmore College, PA Washington University, MO Williams College, MA Yale University, CT Public Universities University of Michigan, MI University of Texas System, TX University of Virginia, VA

5. 5. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Rating Actions Rating Activity Mostly Positive from 2005-2008 – Good demand—record applications everywhere – Substantial gift giving to some institutions – Great investment performance in fiscal 2004-2007 – Improving balance sheets and strong operating performance Offsetting Credit Factors: – Rising debt Levels and increasing costs – Strong competition in some regions and high tuition discounting – Non-sustainable endowment spending – Deficit financial operations

6. 6. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hot Topics/Trends Picky students: are changing consumer preferences permanent, and what are the facility and capital implications? Pension and OPEB funding: a continuing concern. OPEB liabilities will show in 2008 public university audits Containing costs: insurance, health care, pensions, etc. Faculty retention: attracting and retaining faculty; preventing ‘poaching’ of top public university faculty Deferred maintenance pressures: combined with increasing debt burdens Uncertain state appropriation environment Cost and affordability pressures for private colleges/universities

7. 7. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hot Topics/Trends - General Demand U.S. demographic picture is changing, resulting in socioeconomic positioning. The big three: California, Texas, and Florida Aging U.S. population (fewer traditional aged students over time, & more baby-boomers with different educational needs) For-profit competition Is there an urban advantage? Gender imbalance—will it affect program choice or enrollment? Growth of first-generation students – will they need more financial aid?

8. 8. CONFIDENTIAL AND PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. Hot Topics/Trends - Endowment, Liquidity, Investments Dependence on Endowment Spending: At heavily endowed private universities, endowment spending is a substantial % of operating revenues Liquidity: Endowments are less liquid as asset classes are less marketable and measurable. Is the 60/40 rule-of-thumb now 90/10? Capital Calls and Lock-ups: both can reduce portfolio liquidity Asset Mix Aggressiveness: Not all have the “investment infrastructure” to invest the way that big endowments can S&P Focus: liquidity and management, asset allocation, and investment performance