New York, September 27, 2012 -- Moody's Investors Service has affirmed the A1 rating on Muhlenberg College's (Muhlenberg) $73.9 million of rated bonds outstanding. The series 2008 variable-rate demand bonds (A1; Aa2/VMIG2) will be converted to a bank bought index floating rate mode expiring 6.5 years from the conversion, and the supporting letter of credit will be terminated. The rating outlook remains stable.

SUMMARY RATING RATIONALE

The A1 rating and stable outlook reflect Muhlenberg's robust operating performance, strong financial resources, and solid liquidity. These factors are offset by the university's highly competitive student market coupled with projected high school graduate declines, respectively weak philanthropic support, and limited revenue diversity.

STRENGTHS

*Consistent market demand reflected in good selectivity of 43% and moderate yield of 28%.

*Consistently robust operating margins (averaging 12.4% over the last three years) and strong cash flow providing ample coverage of debt service. Expected FY 2012 results to be slightly stronger than FY 2011.

*Long trend of annual surpluses and investment growth have manifested in high unrestricted and expendable financial resources providing healthy cushion to debt and operations of 2.4 times and 2.1 times respectively.

*Strong liquidity with 600 monthly days cash on hand and over 2 times coverage of demand debt provided by unrestricted monthly liquidity.

CHALLENGES

*Strong competition, and a projected decline in the applicant pool in the Mid-Atlantic region where the majority of Muhlenberg students are drawn could pressure an already somewhat weakened yield of 28%.

*Weak philanthropic support compared to A-rated peers. Muhlenberg generated a three year average $8.8 million of gift revenue compared to the A rated FY 2011 median of $13 million.

*Limited revenue diversity with 84% of revenues derived from student charges, including tuition and auxiliary revenues, which is high relative to FY 2011 A-rated private university median reliance on tuition and auxiliaries of 76.1%.

Outlook

The stable outlook reflects Moody's expectation that the college will continue to exhibit healthy demand statistics, strong operating results, and sufficient financial resources to support debt and operations.

WHAT COULD MAKE THE RATING GO UP

Improved market position reflected in selectivity and yield rates coupled with significant increase in financial resource base and gift revenue offering greater revenue diversity

WHAT COULD MAKE THE RATING GO DOWN

Deterioration of market position; weakening operating trends; significant weakening of financial resource cushion supporting debt and operations

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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Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

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Caitlin Bertha Associate 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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