DALLAS — Texas Southern University is in danger of losing its investment-grade rating from Moody's Investors Service.
Moody's downgraded $81 million of the historically black university's outstanding debt to Baa3 on April 15 and maintained its negative outlook. Baa3 is the lowest investment-grade rating on Moody's scale.
"The downgrade to Baa3 reflects our expectations that operations will continue to be imbalanced despite cost reduction strategies implemented by the university," according to analyst Mary Katherine Cooney. "Liquidity remains very thin, providing an increasingly narrow cushion to operations and debt, which will be further pressured with additional debt expected in the next year."
Based in Houston, Texas Southern University is a four-year public university established in 1947 to serve the African-American population of Texas. TSU has eight schools and colleges, with graduate programs that include a college of pharmacy and a college of law. In fiscal year 2014, the university generated $167 million of operating revenue and served 9,262 students.
The majority of the university's revenue finance system debt is backed by state appropriations, although there is no legal pledge of this funding. In FY 2014, TSU received $17.6 million in debt service reimbursement from the state. TSU's Series 2013 Bonds have a debt service reserve fund requirement met with a surety bond.
Fitch Ratings affirmed its higher BBB-plus rating in July but also issued a negative outlook.
TSU's enrollment dropped 9% in fall 2013, which the university attributed to changes in federal Pell Grant eligibility rules, tighter federal student loan underwriting standards, and overly optimistic budget expectations.
"TSU's failure to regrow and stabilize enrollment in fall 2014 and return to break-even operations on a full accrual basis in fiscal 2015 will lead to a downgrade," Fitch analyst Susan Carlson said.
