S&P: Brooklyn Law School Outlook Negative

Standard & Poor's revised its outlook to negative on Brooklyn Law School bonds, citing financial challenges law schools face nationwide.

"The law school sector is still quite volatile, and we believe law schools could experience further enrollment decreases over the next two years," Avila wrote, noting that S&P maintained its BBB-plus rating for revenue bonds issued by the New York State Dormitory Authority.

The school has about $69 million of debt outstanding.

But one legal expert said there's no need to sound alarm bells, even though law school enrollments are down.

"I'm not terribly worried about the strength and ability of law schools to repay their debt obligations," said Jeffrey Wurst, a partner at middle-market Ruskin Moscou Faltischek PC in Uniondale, N.Y.

"It's not the first time we've seen this," said Wurst, who chairs his firm's financial services, banking and bankruptcy department and has practiced law for more than 30 years. "The economy gets tough, enrollment goes down because there are fewer jobs available for lawyers, and then the economy picks up and then you have a shortage of lawyers."

S&P on Monday lowered its outlook on Brooklyn Law from stable, citing lower enrollment and weaker finances. Moody's Investors Service affirmed its equivalent Baa1 rating and stable outlook.

"We believe we will likely lower the rating over the next two years if the Brooklyn Law School's enrollment were to continue to decrease, if full-accrual deficits and net tuition revenue decreases were to continue, or if financial resource ratios were to deteriorate," S&P credit analyst Emily Avila wrote in a report.

"Standard & Poor's has valid concerns," Brooklyn Law said in a statement. "We are highly confident that despite these challenges, Brooklyn Law School will continue to do well." Moody's, in affirming its rating, cited "the college's consistently positive cash flow, adequate balance sheet and limited applicant pool due to being a specialty school."

Like its counterparts nationwide, Brooklyn Law's enrollment has dropped sharply. According to S&P, it dropped about 10% to 1,137 from 1,269 in fall 2012, and 22% over three years, although Dean Nicholas Allard reported a slight uptick in incoming students this fall.

S&P said Brooklyn Law's strengths include "strong financial resource ratios for the rating category with fiscal 2012 expendable resources of $103 million, or 125% of operations and 128% of debt; solid demand profile; and unique location. Offsetting credit factors include a weaker operating performance, a significant drop in applications amid a competitive market and high maximum annual debt service of 8.2% of fiscal 2012 operations.

Brooklyn Law lists former New York City Mayor David Dinkins, developer Larry Silverstein and television journalist Geraldo Rivera among its alumni.

"Moody's and Standard & Poor's reports show that Brooklyn Law School's glass is a lot more than half full," said Allard, the school's eighth dean in its 113 years.

He pointed to pared operating costs, sound financial management and innovative programs including an accelerated two-year law degree program, a "business boot camp" in partnership with consulting firm Deloitte, and a two-year fellowship-in-practice program for third-year students.

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