CHICAGO – Moody’s Investors Service stripped Central College in Iowa of its underlying investment grade rating over its stressed operations.

Moody’s lowered the college’s underlying rating to Ba2 from Baa3 on $62 million of rated debt and warned it may not stop there by assigning a negative outlook.

“The downgrade is driven by two years of significant declines in freshman matriculants which will stress the college’s operations that are heavily dependent upon tuition revenue, compounded by a highly competitive market,” Moody’s said earlier this month.

The college’s small scope of operations and a history of covenant breaches for which it has recieved waivers, and the possibility that $10 million of variable rate demand bonds could be accelerated should the college fail to meet its covenants in the future also contributed to the downgrade.

Moody’s had put the college under review for a downgrade in August.

The college could face acceleration repayment on all bonds under a cross-default provision in its Series 2012 A&B Loan Agreement. Its LOC calls for the college to maintain a ratio of unrestricted financial resources to long term debt of at least 50%.

In fiscal 2012, Central’s liquidity ratio was 44% and it received a waiver. All covenants were met in fiscal 2013, but the liquidity ratio continues to have weak coverage.

The credit benefits a strong financial management team capable of executing necessary expense reduction, financial reserves, and liquidity providing an adequate cushion of debt and operations. Wells Fargo Bank NA supports the school’s 2008 bonds.

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