Moody's Investors Service said it has downgraded Bard College, N.Y.'s rating to Ba1 from Baa1 and revised the outlook to negative.

This concludes the review of the college's rating that began on September 11, 2013.

The downgrade is driven by the college's exceedingly thin liquidity with full draw on operating lines of credit, material decline in cash and investments outside of sizeable investments held in trust, weakening cash flow, and elevated risks associated with its operating model given the expansion of the expense base.

The negative outlook considers the possibility that the college's liquidity will not materially improve, that it could breach loan covenants, and that the reliance on lines of credit to finance operations and capital needs in advance of the receipt of pledge payments will grow.

The downgrade to Ba1 reflects razor thin liquidity and weakening cash flow from operations combined with an entrepreneurial operating model that continues to grow the college's expense base and exposure to philanthropy.

Bard's continued reliance on operating lines of credit to support operations underscores the college's growing dependence on cash gifts and pledges to fund its expanding operations, a willingness to fund operations and projects prior to payment on pledges, and the uncertainty of the timing of the receipt of pledge payments.

The Ba1 rating also factors the college's high leverage and ongoing capital needs and incorporates limited documentation and transparency of policies, practices, and long-term planning. Superior but concentrated donor support that is a crucial part of ongoing operations, a strong market position with an increasingly global brand, and recent actions that could bolster sources of liquidity support the rating at the Ba1 level.

The negative outlook reflects the heightened financial vulnerability of the college while liquidity remains so thin. It also reflects its vulnerability to disruption in donor support each year, with gifts providing over 40% of annual operating revenues. The college's success in achieving current plans to grow quasi-endowment in tandem with reduced draws on operating lines would be considered credit positive.

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