New York, September 11, 2012 -- Moody's Investors Service has affirmed the Peddie School's Aa2 long-term debt rating on the Series 2004A and 2008 bonds and the Aa2/VMIG1 ratings on the Series 1994B, 1996A, 1999 and 2004B bonds. The short-term VMIG 1 rating is supported by a Standby Purchase Agreement provided by US Bank (rated Aa2/P-1/negative outlook) that is effective through September 1, 2015. The rating outlook remains stable.

SUMMARY RATING RATIONALE

The Aa2 rating reflects the Peddie School's healthy market position as a selective boarding and day school located in Hightstown, New Jersey, with steady enrollment trends, robust operating performance and strong management team, offset by a moderate financial resource base, modest gift revenues, and higher debt burden relative to other highly rated independent school peers.

The VMIG1 rating is derived from the short-term rating of the bank and the likelihood of termination of the applicable SBPA without a mandatory tender. Events that would cause the applicable SBPA to terminate without a mandatory purchase of the applicable bonds are directly related to the credit quality of the school.

STRENGTHS

* Favorable market position and stable enrollment as a selective preparatory school with selectivity rates of 20% in fall 2011 and 21% thus far for fall 2012, and matriculation yields of 55% in fall 2011 and 55% currently for fall 2012.

* Strong financial performance with three-year average operating margin of 13% for the fiscal year (FY) 2009-2011 period and operating cash flow margins of 30% for FY 2011 with similar performance projected for FY 2012. Debt service coverage of 2.6 times for FY 2011 and 2.7 times (unaudited FY 2012) is low relative to other highly rated schools.

* Cohesive management team with extensive experience of the independent school marketplace coupled with conservative budgeting and the realistic understanding of the school's position within the student market and region.

* Monthly liquidity provides excellent coverage of operations, with 1,054 days (2.9 years) monthly cash on hand for FY 2011, as well as over 5 times coverage of the school's variable rate debt.

CHALLENGES

* Weakened, but good financial resource base with total financial resources of $288 million in FY 2011 and $268 million for preliminary FY 2012, with the 7.5% decline due largely to volatile market conditions. Expendable financial resources of $121 million in FY 2011 and $103 million for preliminary FY 2012 provide adequate cushions to debt of 2.9 times and 2.6 times, respectively, and to operations of 3.7 times and 3.1 times, respectively, for a school at this rating level.

* Variable rate debt exposure and counterparty concentration, comprising 37% of total debt with $15.2 million all backed by SBPAs from a single provider - US Bank National Association - exposes the school to single provider renewal risk, although Peddie's liquidity position remains substantial to meet monthly liquidity needs and has sufficient headroom to cover financial covenants.

* Gift revenues, on average ($4.0 million in FY 2011 and $4.5 million for unaudited FY 2012) and on a per student basis ($7,250 in FY 2011 and $8,155 for unaudited for FY 2012), are low relative to peers despite recent targeted campaigns which improved the level of absolute gifts in the FY 2007 to FY 2009 period. A recently established capital campaign is on hold until a new head of school is in place following the upcoming retirement of the current head of school.

Outlook

The stable outlook reflects Moody's opinion that Peddie School will experience continued positive operating performance and strong cash flow margins, healthy student demand, moderate growth in financial resources and good debt service coverage.

WHAT COULD CHANGE THE RATING UP

Growth of financial resource base; bolstered fundraising; limited debt issuance

WHAT COULD CHANGE THE RATING DOWN

Deterioration of financial resources levels; weakening of student market position; weakening of operating performance and debt service coverage

RATING METHODOLOGY

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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Mary Kay CooneyAsst Vice President - Analyst Public Finance Group250 Greenwich StreetNew York, NY 10007 U.S.A. Erin Veronica Ortiz 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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