Stockton University, N.J., Downgraded to A3 by Moody's

Moody's Investors Service said it downgraded Stockton University, N.J., (formerly Richard Stockton College of New Jersey) to A3, affecting the outstanding $234 million of Series 2005F, 2006F, 2007G, and 2008A bonds issued by the New Jersey Educational Facilities Authority (NJEFA).

The outlook is revised to negative. This rating action resolves a review for possible downgrade that was initiated on April 23, 2015.

The downgrade to A3 and revision of the outlook to negative reflects a fundamental weakening of the university's financial operations which we expect to continue through at least FY 2016, coupled with the heightened likelihood that operational support from the state of New Jersey will contract over the mid-term, further exacerbating fiscal imbalance.

A comparatively high degree of financial leverage is a constraining factor as the university confronts a potentially weakening state funding environment. Debt service coverage deteriorated in FY 2014, and is expected to remain modest for the rating category for the next several years. Further, the university is in the midst of leadership transition, with recent failure to execute on a high profile expansion strategy highlighting apparent weakness in the university's risk management and oversight practices.

The university's A3 rating favorably incorporates Stockton's role as a mid-sized regional public university with a niche hospitality program, recent enrollment growth, and still adequate, albeit weakening, liquidity position.

The negative outlook reflects ongoing uncertainty around state funding, with potential continued declines in state operational support after fiscal 2016 and a heightened risk that a portion of fringe benefits currently funded by the state could be shifted to the university.

Sustained weak cash flow to support debt service in such an environment would place further pressure on the rating. The negative outlook also incorporates uncertainty for the final resolution of the recent purchase of the Atlantic City casino property.

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