Moody's Investors Service said it has downgraded to Baa1 from A3 the rating on Claremont Graduate University's outstanding 2008 Series A and 2007 Series A revenue bonds issued through the California Educational Facilities Authority.
The outlook is stable at the new rating level.
The downgrade reflects multiple years of operating deficits and weak cash flow, enrollment challenges, and declining gifts, private grants, and research funding. Anchoring the university at the Baa1 rating and stable outlook is its still healthy levels of expendable financial resources, management's adoption of several key initiatives which are expected to result in operational improvement, and the support and brand recognition of the Claremont Consortium.
The downgrade is driven by a trend of weakening operating performance and the inability to cover debt service from operations for the last four years. Management has failed to forecast operations and meet budget enrollment targets over the last few years, due in part to a high level of turnover in key management positions. The Baa1 rating reflects CGU's unique market position as a graduate university within the Claremont consortium and attractive location near Los Angeles, its ability to continue to grow net tuition per student (with the exception of FY 2011), and still favorable level of reserves.
The outlook is stable at this new rating level, reflecting management's commitment to repair the recent history of deficits by prioritizing projects and programs, realigning operations and stabilizing enrollment.
Proven ability to contain expenses in the face of moderate prospects for revenue growth will be key to maintaining the stable outlook at the Baa1 rating and failure to do so could result in additional rating pressure.
