Moody's Investors Service said it has downgraded Alabama A&M University's (AAMU) Series 2007 revenue refunding and capital improvement bonds to Baa2 from Baa1.
The rating action affects $56.3 million of rated debt. The outlook is stable.
The downgrade reflects recent developments since Moody's last affirmation on November 14, 2012, involving elevated risks associated with the university and affiliated foundation's governance and management as well as increased risk for acceleration of student housing debt of the foundation.
The Alabama A&M University Foundation's board has been noncompliant with its bylaws, primarily not meeting as frequently as prescribed and meeting without a quorum.
The lack of board engagement and oversight diminishes the foundation's fiscal stewardship of approximately $43 million of investments, which represent 77% of Moody's calculation of university financial resources.
In addition, the Foundation LLC's Series 2000 bonds, used to finance 15% student housing on AAMU's main campus, has breached technical covenants which would enable bondholders to accelerate the debt -- $16.5 million compared to $13.2 million of expendable financial resources.
The Baa2 rating and stable outlook incorporate the university's relatively weak student market position with declining enrollment, very low unrestricted liquidity, challenging state funding environment, significant capital plans dependent on limited fundraising or debt, and the potential for recent complaints against the university foundation to garner attention from its regional accreditor, possibly leading to an inquiry or a sanction.
Theses credit challenges are offset by balanced operations despite state funding reductions and enrollment declines, management team stabilization, improved ability and willingness to provide current financial data, good coverage of debt by pledged revenues, and currently moderate operating leverage.
The stable outlook also incorporates state oversight, which is demonstrated in recent state legislation altering the nomination process for Board of Trustee members.
