Moody’s Investors Service downgraded Creighton University’s $144 million of debt one notch to A3 due to an overall weakening in operating performance.

The university sells its debt through the Nebraska Educational Finance Authority. Creighton’s weakened position stems from pressure on its health care-related operations, investment losses, and exposure to $120 million of variable-rate debt with tender features.

The university has breached financial covenants in a letter of credit from JPMorgan Chase Bank on its 2008 bonds and its standby bond purchase agreement on a 2005 series. The school is in negotiations to revise the financial covenants.

The provision requires Creighton to pass an unrestricted cash- and investments-to-debt financial covenant of 1.05 times as tested in June and December. It failed the December 2008 test and received a waiver from JPMorgan. It expects to miss the mark again in the test applied at the end of June. JPMorgan could demand accelerated repayment of some debt.

Revenue from the hospital’s faculty practice plan and clinic operations make up about one-third of operating revenues. The Omaha health care market is highly competitive and the school faces competition from another academic medical center that added challenges for its hospital and medical school. The Jesuit school’s strengths include a stable market position in Omaha with 6,576 students, healthy tuition growth and increased gifts.

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