Rating Update: Moody's affirms Whitman College's (WA) Aa3/VMIG 1 rating on Series 2004 and 2008 Revenue Bonds; outlook is stable

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1 Rating Update: Moody's affirms Whitman College's (WA) Aa3/VMIG 1 rating on Series 2004 and 2008 Revenue Bonds; outlook is stable Global Credit Research - 20 Jun 2012 College has $58.7 million of rated debt outstanding WASHINGTON HIGHER EDUCATION FACILITIES AUTHORITY Private Colleges & Universities WA Opinion NEW YORK, June 20, Moody's Investors Service has affirmed the Aa3/VMIG 1rating on Whitman College's ("Whitman" or the "college") Series 2004 and 2008 Revenue Bonds. The long-term rating outlook is stable. The VMIG 1 ratings are based on standby bond purchase agreements (SBPAs) supporting the tender features of the bonds. The Series 2004 bonds are supported by an SBPA from JPMorgan Chase Bank, N.A. (rated Aa1/P-1, with the Aa1 under review for downgrade). The Series 2008 bonds are supported by an SBPA from Bank of America, N.A., currently rated A2/P-1, with both ratings under review for downgrade. Consequently, the VMIG 1 rating for the Series 2008 Revenue Bonds is under review for downgrade. SUMMARY RATING RATIONALE The Aa3 rating reflects Whitman's historically healthy balance sheet with sound coverage of debt from financial resources that have grown after substantial losses in fiscal year (FY) The rating also incorporates a decline in operating performance at the college (as calculated by Moody's), high dependence on tuition revenue and strong competition in its student market. The VMIG 1 ratings reflect liquidity support for the bonds' tender features from SBPAs provided by banks currently with a P-1 short-term rating. STRENGTHS *Ample level of expendable financial resources with low debt burden reflected in expendable financial resources to debt coverage of 4.51 times, and no plans for additional debt within the next eighteen to twenty four months. *Established market niche as a private liberal arts college located in Walla Walla (Washington) with stable growth in full time equivalent (FTE) enrollment, which totaled 1,577 in fall 2011, up 10% over fall 2008 (1,434 FTEs). *Sufficient monthly liquidity to demand debt coverage of 219% with a solid monthly days cash on hand, although a high 97% of the college's total debt is in variable rate mode. CHALLENGES *Notable decline in operating performance in FY 2011 to operating margin (as calculated by Moody's) of 1.6% from 9.1% in FY 2010 due to greater instructional expenses and higher tuition discount rates, with FY 2012 operating results projected to be slightly better than FY *Highly competitive market in the Pacific Northwest from both private colleges within the region and public universities, evidenced by a lower enrollment yield of 24.2% (compared to a prior three-year average of 27.9%). *Tuition revenue comprising 64.5% of total operating revenue in FY 2011, with the concentration in this source increasing over the years from 55.8% reliance in FY DETAILED CREDIT DISCUSSION LEGAL SECURITY: The Series 2004 and Series 2008 Revenue and Revenue Refunding bonds are general obligations of the college. The college is subject to certain covenants in its Bank SBPA's including the maintenance of: (i) debt service coverage of at least 1.25 times, ii) unrestricted net assets to long term indebtedness of at least

2 1.5 times, and iii) unrestricted liquid assets to long term indebtedness of at least 1.0 times. Whitman is required to calculate these on an annual basis and was in compliance with all covenants at the close of FY There is no debt service reserve fund for either the Series 2004 or 2008 bonds. DEBT STRUCTURE: A large proportion (97%) of the college's outstanding direct debt of $60.7 million is in weekly variable rate mode. The VMIG 1 rating for the Series 2004 bonds is based on the SBPA with JP Morgan Chase Bank (rated Aa1/P-1, long-term rating under review for downgrade) which supports the tender feature of the bonds. The VMIG 1 for the Series 2008 bonds is under review for downgrade based on the SBPA from Bank of America (A2 /P-1, both ratings under review for downgrade). Management reports that the college has plans in place to replace the Bank of America SBPA in the event the bank's short-term rating is downgraded by Moody's. DEBT RELATED DERIVATIVES: The college is currently party to two swap agreements. The swap counterparty related to the Series 2004 bonds is JPMorgan Chase Bank. Under the agreement, Whitman pays a fixed rate of 4.340% and receives a SIFMA based swap rate from JP Morgan. As of June 1, 2012 the mark-to-market value was approximately negative $10.62 million for the college; at the current Aa3 rating level, Whitman has a $10 million threshold and has posted a maximum collateral of $630,000 to JPMorgan. JP Morgan may terminate the agreement under certain conditions including if Whitman College's rating falls to below Baa3. Under the terms of the swap if JP Morgan's rating fell to below Baa3 the college has the right to terminate the swap agreement. The swap counterparty for the swap related to the Series 2008 bonds is the Bank of New York (the replacement swap counterparty). The college pays a fixed rate of 3.367% and receives a floating rate of 67% of LIBOR. The counterparty may terminate the swap agreement under certain conditions including if the college's rating falls below Baa2. MARKET POSITION / COMPETITIVE STRATEGY: MODERATELY SELECTIVE INSTITUTION WITH HISTORICALLY STABLE ENROLLMENT GROWTH IN A COMPETITIVE STUDENT MARKET Whitman College has an established market position as a small, rural, moderately selective private liberal arts college located in Walla Walla, Washington. The college operates in a competitive environment amongst other smaller, selective colleges and universities in the west coast and Northwest Pacific region. In fall 2011 total enrollment grew by 2.6% to 1,577 full time equivalent (FTE) students from fall 2010 (1,537 FTEs), well over the budgeted enrollment of 1,475 FTEs for FY In recent years the pace of enrollment growth has been stable at between 2% and 4% although the college had a larger than expected incoming fall 2010 class of 416 freshmen this was intentionally reduced to 400 freshmen in fall 2011 (in line with the incoming freshman class sizes seen in prior years). Management reports that this reduction was done as a part of the strategy to move towards need sensitive admissions and to relieve pressures due to the larger class size in the prior year. The college recruits from a diverse pool with under 25% of the fall 2011 incoming class from the state of Washington. Despite increases in enrollment in recent years, yield fell to 24.2% in fall 2011 (against a prior three year average yield of 27.9%). Management attributes dip in yield and the increase in acceptances in recent years to a move to needs sensitive admission criteria and management reports plans to focus on managing tuition discounting downward (40.1% in FY 2011). This would be a credit positive as tuition discount has increased in recent years, accompanied by a decline in net tuition per student in FY 2010 ($22,460) and only slight growth (to $22,736) in FY Management also reports a focus on retention which increased to 95% from 92% in fall Applications for fall 2012 are trending in line with applications at the same time last year and we expect Whitman to exceed its fall 2012 budgeted total enrollment of 1,475 FTEs. OPERATING PERFORMANCE: DIP IN OPERATING PERFORMANCE IN FY 2011, ALTHOUGH DEBT SERVICE COVERAGE FROM OPERATING CASH FLOW REMAINS SOLID Whitman College had an operating margin of 1.6% and operating cash flow margin of 13.5% (as calculated by Moody's) in FY 2011, a significant decline from a prior three-year average operating margin of 11% and considered a credit negative for the college. The reasons for the decline are increased tuition discounting and an increase in expenses. The noted decrease in net tuition per student reflects the increase in the tuition discount rate to 40.1% in FY 2011 from 35.7% in FY 2008, further evidence of the need to increase university funded financial aid in a competitive student market in order to grow enrollment. We expect operating performance to remain depressed at lower levels unless the college can grow net tuition per student and effect cost containment to rein in operating expenses. Continued stagnant to declining net tuition revenues resulting in consistently weaker operating cash flow generation that produced historically could result in downward pressure on either the outlook or rating. The tuition discount rate increased to 40.1% in FY 2011, up from 35.7% in FY 2008, further evidence of the need to

3 increase university funded financial aid in a competitive student market in order to grow enrollment. Expenses increased 9.2% from FY 2010 to FY 2011, which management attributes to increased grant spending, increased faculty salaries and benefits to meet increased enrollments, increased depreciation and its allocation of plant and capital expenses across different expense categories instead of capitalizing them (as they did not meet the minimum amount required for capitalization, of $10,000). Management reports budgeting for deferred maintenance, a credit positive and proactively funds a Life Cycle Reserve Fund in the annual operating budget to address required maintenance and deferred charges on campus. The current amount of this reserve is over $18 million and the college has been diligent in investing in plant, evidenced by a capital spending ratio of 1.77 times in FY 2011 (down from a high 3.12 times average for the prior three years) and a young age of plant of 8.84 years (as calculated by Moody's). The college is moderately dependent on tuition revenue at 64.7% of overall operating revenue in FY 2011 (up from a low of 55.8% in FY 2007). Dependence on tuition revenue is expected to stay at the same level in FY 2012 as FY 2011 as the university exceeded FY 2012 budgeted enrollment but also increased discount rate. Management reports that the college is on schedule to exceed budgeted enrollment for fall 2012 (1,475 FTEs) although the budgeted discount rate for FY 2013 is lower than in prior years and tuition increases more moderate (4% budgeted tuition increase for FY 2013, compared to 4.5% in FY 2012). BALANCE SHEET POSITION: PRIMARY CREDIT STRENGTH OF BALANCE SHEET RESOURCES PROVIDING AMPLE COVERAGE OF DEBT AND OPERATIONS; NO IMMEDIATE PLANS FOR FURTHER DEBT ISSUANCE Whitman College's primary credit strength is derived from its level of financial resources, which have grown since FY 2009 following the investment losses incurred that fiscal year. Expendable financial resources grew 28% to $273.8 million in FY 2011 (from $214.3 million in FY 2010), providing strong operating and debt cushion of 4.5 and 4.1 times respectively. Unrestricted monthly liquidity is also strong. At the end of FY 2011 the college had monthly days cash on hand; the 219.2% monthly liquidity to demand debt indicates adequate coverage for a relatively high proportion of demand debt (97% of comprehensive debt). Since November 2011 the college has been in the public phase of a capital campaign with a target of $150 million. The campaign is expected to conclude in 2014 and the college has already raised a total of $108 million ($58 million in cash and $50 million in pledges) to date. Management reports no plans to issue debt within the next 18 to 24 months. Operating leverage is high at 0.89 times debt to operating revenue and there is little capacity for additional leverage from an operations perspective at the Aa3 rating level. The college has prudently budgeted for debt service payments. The Series 2004 bonds have a bullet payment of $28.8 million due in October 2029, for which the college is annually funding an internal reserve dedicated to payment of the bullet at maturity. Debt service payments on the Series 2008 bonds are funded from a portion of quasi-endowment. The quasi-endowment totaled $15.9 million as of June 30, 2011, with the portion earmarked for Series 2008 bond debt service payments totaling $8.47 million. The college had a 19.6% return on its investment portfolio in FY 2011, in line with other reporting institutions. Out of a total investment portfolio of $393.1 million at June 30, 2011, 29.1% was invested in domestic and international equities, 7.4% in fixed income, 40.8% in alternative investments (including 20.7% in private equity and 20.1% in hedge funds), with 6.7% in real estate investments, 10% in commodities and 6% in cash and other investments. As of March 31, 2012 the return to date on the investment portfolio was 2.96%. We note that as of March 31, 2012 there was some exposure to alternative investments with 30.6% of the $381.6 million investment portfolio in private equity and alternative investments. However there is significant diversity within the assets allocated to this portion of the portfolio with no individual manager holding more than 3% of assets. GOVERNANCE AND MANAGEMENT: PRUDENT BUDGETING AMID A CHALLENGING MARKET SITUATION AND WEAKENING OPERATING PERFORMANCE Management at Whitman College has been prudent in budgeting for deferred and ongoing maintenance and depreciation through the funding of an internal Life Cycle Reserve fund. The use of the fund has provided the college the operating flexibility to finance capital improvements without the need to issue additional debt. Although Whitman has a very high proportion of variable rate debt relative to its total debt, the college has sufficient coverage from unrestricted monthly liquidity. Further, the current capital campaign is expected to increase the level of unrestricted net assets providing additional coverage. Outlook

4 The stable outlook incorporates expectations of stable to slightly lower enrollment growth as Whitman moves to a needs-sensitive admissions regime. Operating performance is expected to stabilize, although at a lower level due to increased discounting and rising expenses, and cash flow generation for debt service coverage is expected to be lower than in the past but still adequate. Management reports no additional debt issuance within the immediate to short term future and we note that there is little room for additional debt from an operating perspective, at the current Aa3 rating level. WHAT COULD MAKE THE RATING GO UP Unlikely in the near term given challenging student demand and pressures on net tuition revenues driving weaker operating performance. In the longer term, any upgrade would be driven by a return to stronger improved operating performance and cash flow generation providing ongoing robust debt service coverage, growth in financial resources, and rising net tuition revenue WHAT COULD MAKE THE RATING GO DOWN Weakening of student market position demonstrated by prolonged enrollment stagnation or continued stagnation or declines in net tuition revenues; further weakening of operating performance and cash flow generation, issuance of material amounts of debt without corresponding increase in resources KEY INDICATORS: (FY 2011 data, fall 2011 enrollment) Operating Revenue (Moody's adjusted): $68.3 million Full Time Equivalent (FTE) Enrollment: 1,577 students Primary Selectivity: 47.3 % Primary Matriculation: 24.2 % Net tuition per student: $22,736 Educational Expenses per Student: $35,787 Average Gifts per Student: $9,670 Total Cash and Investments: $ million Total Direct Debt: $ 60.7 million Total Comprehensive Debt*: $60.7 million Expendable Financial Resources to Debt: 4.51 times Expendable Financial Resources to Operations: 4.07 times Monthly Days Cash on Hand: days Operating Cash Flow Margin: 13.5% Three-Year Average Debt Service Coverage: 4.87 times Reliance on Student Charges Revenue (% of Moody's Adjusted Operating Revenue): 64.7 % *Comprehensive Debt includes direct debt and operating leases RATED DEBT: Series 2008 Variable Rate Demand Revenue Bonds: Aa3 / VMIG 1 (RUR), supported by an SBPA provided by Bank of America Series 2004 Variable Rate Demand Revenue Refunding Bonds: Aa3/ VMIG 1, supported by an SBPA provided by JPMorgan Chase Bank, N.A. CONTACTS:

5 Whitman College: Peter Harvey, Treasurer & Chief Financial Officer: (509) Walter Froese, Controller: (509) PRINCIPAL RATING METHODOLOGY The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August Please see the Credit Policy page on for a copy of this methodology. REGULATORY DISCLOSURES The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information. Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating. Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Please see the ratings disclosure page on for general disclosure on potential conflicts of interests. Please see the ratings disclosure page on for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter. Please see Moody's Rating Symbols and Definitions on the Rating Process page on for further information on the meaning of each rating category and the definition of default and recovery. Please see ratings tab on the issuer/entity page on for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website for further information. Please see for any updates on changes to the lead rating analyst and to the Moody's legal entity

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