Moody's Investors Service said it has upgraded its rating on Birmingham-Southern College, Ala.'s revenue bonds to B3 from Caa1.
The outlook is stable.
The upgrade to B3 reflects ongoing traction in Birmingham-Southern College's recovery plan. Operating performance in FY2013 was strong with a 17.7% operating cash flow margin, in part supported by $8.7 million in unrestricted gifts.
This enabled the college to begin to rebuild some flexible reserves, although liquidity remains low. During fiscal 2013 the college was also taken off warning by SACS and extended its largest credit agreement with Regions Bank.
Despite this momentum, serious challenges remain including stagnant net tuition revenue expected to continue through fiscal 2014, high operating leverage, thin flexible reserves and reliance on donor support. As the college strives to stabilize, it has also reduced capital investment that, if continued, will create lasting challenges as deferred maintenance builds and the campus become less attractive and competitive.
The B3 rating and stable outlook incorporate ongoing enhancement of governance and management at the college. With a recently streamlined board and under new leadership, the college has demonstrated improved financial discipline and enhanced student marketing.
Management reports increased student demand for the fall 2014 entering class. Over the medium term the college seeks to rebuild to 1,600 students from under 1,200 in fall 2013 and is putting systems and processes in place to maintain operating equilibrium, reduce debt and build endowment as it grows.
