Fitch Ratings downgraded to junk its rating on $45.1 million of economic development revenue refunding and improvement bonds issued by the city of Anderson for Anderson University.

The rating agency warned of further action and assigned a negative outlook.

The downgrade to BB-plus from BBB-minus reflects the university’s weakening financial profile. Years of falling enrollment has led to a decline in student revenue, which accounts for nearly 80% of the school’s overall revenue, Fitch said.

AU is a Christian school located in Anderson, 35 miles from Indianapolis.

The bonds are not secured by a mortgage. Some of the proceeds, however, were used for a debt-service fund, which remains fully funded, Fitch said.

The school could suffer another downgrade if its financial situation does not stabilize, analysts said.

“The university’s leadership team, at both the management and board level, appear to recognize that AU is at a critical juncture in terms of long-term financial health,” wrote analyst Eric Kim.

Kim noted that earlier this year, officials implemented a 100-day turnaround plan to cut $600,000 from the budget.

“Should enrollment fail to rebound to historical levels, the university will likely have to make significant adjustments in its expense structure to match a smaller revenue base and stabilize operations,” Kim wrote.

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