Moody’s Investors Service last week downgraded to B3 from Ba3 its rating on Ashland University, Ohio, and kept its outlook negative, saying it expects the school to face continued cramped liquidity and a challenged market position.

The downgrade affects $37 million of outstanding debt that was issued in 2010 through the Ohio Higher Educational Facility Commission.

Ashland is a private university with roughly 2,200 undergraduate students.

Moody’s downgraded the school to Ba3 in September and put the debt on review for possible further downgrade at the time. In addition to its challenged liquidity and market position, the school’s debt structure includes variable rate loans from three banks, cross default provisions, bullet maturities and interest-rate swaps, Moody’s said.

“In addition, nearly all of Ashland’s unrestricted funds secure bank loans placing the 2010 bonds in a subordinate position that could impact expected recovery if an event of default-caused acceleration,” the ratings agency wrote. “The rating also reflects pressure on net tuition growth, thin debt service coverage, and enrollment declines.”

The school’s debt has also grown beyond Moody’s original expectations, the report said.

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