Moody’s Investors Service last week downgraded to Baa3 from Baa2 its underlying rating on Central College’s $23.5 million of outstanding variable-rate bonds from a 2008 issue.

The outlook is stable.

The rating is the lowest investment-grade level.

“The rating action reflects limited financial flexibility, risks of the debt structure, and a continued challenge to meet budgeted enrollment levels,” Moody’s wrote in its report.

The bonds are rated Aaa/VMIG1 based on the joint support of the college and a letter of credit from Wells Fargo Bank NA.

The LOC expires Sept. 3, 2011. If the bank purchases bonds that are not remarketed, Central must repay the bank in quarterly installments over four years beginning within 180 days of the draw on the bank.

Additionally, covenant violations could trigger an event of default, forcing the college to immediately pay to the bank any amounts due under the LOC.

While the school was in violation of two covenants for the 2008 bond issue for the fiscal year ending June 30, the bank waived the violation.

Central projects it will correct one of the violations in fiscal 2010, but not the other involving a liquidity ratio. The college hopes to win a revision in the covenant allowing it to count assets currently uncounted.

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