CHICAGO - Moody's Investors Service yesterday said it would develop a new set of liquidity measures to take into account when examining the credit profiles of universities, hospitals, and other nonprofit groups.
The rating agency currently gathers information on a credit's liquidity position on a case-by-case basis, but the new ratios will be an effort to include more consistent information for investors, analysts said in a report called "Moody's Developing New Liquidity Ratios for U.S. Universities, Hospitals & Other Not-for-Profits."
"What prompted our desire to develop some new liquidity ratios in the sector is how complex investment management at universities and hospitals and other nonprofits has become," said analyst Roger Goodman, who wrote the report. "Unfortunately, the disclosure from organizations to the investment public, outside of just to the rating agencies, we feel has been very limited and doesn't provide enough information to make a strong informed credit decision."
The issue has become more important as market conditions over the last year have led to steep investment losses for many nonprofit organizations, according to Moody's.
Universities and colleges in particular rarely release information on unrestricted cash and investments, while hospitals nearly always do, Goodman said. Higher education institutions typically include so-called financial resources metrics in their annual reports, referring to an organization's total net assets but not specifically to the liquidity of those assets.
"We've been collecting information around liquidity of investments in these sectors for quite a while, but the issue is more consistency," Goodman said, adding that most issuers seem happy to provide the additional information. "There's a general sense that this is important information. It's also an issue they are directly thinking about and working on."
Moody's expects to release the new ratios by the end of the year, Goodman said. Analysts are currently talking with borrowers and investors to help draft the new measures.
The rating agency said it expects to use more than one metric and will seek snapshots of a credit's liquidity position over many time frames, such as weekly, monthly, and annually. The new ratios will also likely address the uncertainty of investment liquidity by asset class and manager type, according to the report.
"In particular, we will likely exclude from readily available investments hedge funds that promise liquidity within a certain time period, but have the ability to implement 'gates' to limit withdrawal in some circumstances," the report said.
Liquidity - or more specifically, the decline of it - is one of a number of factors that drove the number of downgrades during the first quarter in the nonprofit health care sector, Moody's said in a separate report released yesterday.
Moody's downgraded 19 hospitals and upgraded only five during the first quarter of 2009 - a negative trend that nevertheless showed a slowing pace of downgrades compared to the fourth quarter of 2008. The rating agencies downgraded 27 hospitals in the fourth quarter of last year.
"However, unlike the prior quarter, downgrades are now spreading across the majority of rating categories and are not limited primarily to Baa or lower ratings," analysts said in the quarterly report. "We expect the elevated level of downgrades to continue for the balance of the calendar year 2009."
Analysts attributed the pace of downgrades to a number of economic and fiscal challenges, including deteriorating liquidity and balance sheets from investment losses and large interest-rate swap collateral postings and weakening operating performance.
