Coronavirus pressures bring downgrade to junk for Rider University

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Tuition revenue headwinds made worse by the COVID-19 pandemic cost Rider University an investment grade rating.

Moody’s Investors Service downgraded Rider’s revenue bonds two notches Monday to Ba1 from Baa2 and assigned a negative outlook, citing persistent operating deficits during the past two years while grappling with declining enrollment. The downgrade affects $73 million of rated bonds issued through the New Jersey Educational Facilities Authority.

Rider University's revenue challenges were a factor in the Moody's downgrade.

“The downgrade reflects significant student market pressure leading to declining enrollment and net tuition revenue,” Moody’s analyst Pranav Sharma wrote. “These challenges will be exacerbated by the impact from coronavirus including the university's policy of refunding or issuing credit for room and board revenue for a portion of the spring 2020 semester.”

Sharma noted that Rider is facing continued deep operating deficits after suffering a more than 12% decline in total revenues between the 2015 and 2019 fiscal years. The Lawrenceville, New Jersey-based school had a 10% operating deficit in 2019 and is looking at further revenue declines next year with a smaller incoming freshman class coupled with increased tuition discounting. For the fall 2019 semester, Rider had enrollment of 4,274 full-time students.

Rider has seen a 25% decline in monthly liquidity over the past five years resulting from deficit operations and strategic investments, according to Sharma. The private university’s fiscal obstacles are compounded by COVID-19, which resulted in partial refunds for dorm expenses since students were forced to leave campus midway through the spring semester. It had nearly 80 days monthly cash on hand last year.

The downgraded bonds are secured by revenue and a mortgage pledge on certain property. As of fiscal 2019, Rider had a $129 million book value of fixed assets, which Sharma said would support prospects for recovery on the bonds if there were a default.

Rider is planning to sell its 23-acre music campus in Princeton, N.J. Sharma said that while net proceeds could provide a liquidity infusion, the sale still faces legal challenges.

“The negative outlook reflects the likelihood of additional negative rating action if Rider is unable to stem enrollment declines and adjust its budget to be more financially sustainable, “ Sharma said. “These actions will prove more challenging over the next several years as recession risks rise.”

Sharma said the Ba1 rating is based on assumptions that classes will resume on campus this fall.

Federal aid for higher education under the 'Coronavirus Aid, Relief, and. Economic Security Act will provide some immediate relief, but is unlikely to offset long-term negative effects from COVID-19 for Rider, according to Sharma.

Rider spokeswoman Kristine Brown said a new financial leadership team is working on conjunction with university leaders on implementing a long-term comprehensive plan to address near-term fiscal challenges through a combination of revenue enhancements and cost reductions. Brown said the university expects the sale of its Princeton property and savings from campus consolidation to be a “significant factor” in stabilizing finances with the federal stimulus package also proving potential opportunities to offset costs related to COVID-19.

“Rider University acknowledges the difficult and competitive marketplace it operates in, not only in New Jersey, but in the Northeast region of the country,” Brown said. “For several years, the University has been taking aggressive steps to improve its operating performance and grow enrollment to ensure Rider remains competitive and in good financial health.”

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Coronavirus Higher education bonds Ratings Rider University New Jersey Educational Facilities Authority New Jersey