Standard & Poor's Ratings Services said it lowered its long-term rating to B from BBB-plus on Alabama State University.
The outlook is negative.
"The downgrade reflects the swift and significant erosion of already limited reserves that has pressured operating liquidity," said Standard & Poor's credit analyst Ashley Ramchandani.
At the time of its last review, management had indicated that the use of reserves would be around $900,000 and $800,000 for fiscal 2013 and fiscal 2014, respectively, to balance the budget. However, the use of reserves in fiscal 2013 was much larger than anticipated, plummeting to $13.3 million in fiscal 2014 from an already low $24 million in unrestricted net assets in fiscal 2012, a decline of 44%. The rating agency believe that reserves will continue to decline through 2015, thus pressuring operating liquidity.
"In addition to the extremely weak financial profile, other factors that contribute to the downgrade include an accreditation warning that we anticipate will not be resolved until June 2015, and a complete turnover in management," added Ramchandani. "We believe these factors are indicative of a speculative grade credit. We understand that the college has made timely debt service payments through fiscal 2014. However, we believe adverse business, financial, or economic conditions could impair ASU's capacity to meets its financial commitment for its debt obligations on a timely basis."
