A Negative Affirmation

Moody’s Investors Service revised its outlook to negative Monday and affirmed its Aa3 rating on Earlham College. The liberal arts college in Richmond has $36.4 million of direct debt, of which $26.5 million is rated by Moody’s.

Earlham, which has ties to the Quaker religion, enjoys a strong market position and a stable balance sheet, Moody’s analysts said. Its challenges include declining student matriculation — which was at 23% as of fall 2009, down from 30% in 2005 — combined with a modest fundraising record and high-tuition discount rate.

The school also faces capital demands, as its median plant age is 16.6 years compared to 10.6 years in the peer rating category.

“Strengthening of student matriculation remains an important factor in maintaining credit health as future demand and market position could be pressured given the competitive higher education environment and small [full-time equivalent] student base of 1,172,” Moody’s wrote.

Credit positives include healthy liquidity, strong annual operating performance and cash flow, and a relatively conservative debt structure, most of it fixed rate.

The college issued bonds in 1998, 2004, and 2007. The Indiana Health and Higher Educational Facilities Authority issued the bonds on Earlham’s behalf.

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