Moody's Investors Service said it downgraded $489 million of University of Puerto Rico University system revenue bonds to Caa2 from Caa1 and $73 million of educational facilities revenue bonds, 2000 Series A issued through AFICA to Caa3 from Caa2.
The outlook is negative.
The rating differential between the university system revenue bonds and the educational facilities revenue bonds reflects the subordinate pledge and lease structure of the educational facilities revenue bonds.
The downgrade of the University of Puerto Rico's (UPR) bonds is driven by the university's extraordinarily high reliance on the commonwealth of Puerto Rico for operating revenue at (three-quarters of revenue) and for governance, coupled with its reliance on Government Development Bank for liquidity and financial management support.
UPR has extremely weak liquidity and limited ability to grow other revenue sources, conditions that should continue given expected challenges to maintain enrollment and grow tuition revenue. These conditions expose to university to possible credit contagion related to the commonwealth and provide the university little cushion to cope with any reduction in commonwealth appropriations or interruption in cash flow from the GDB.
