Standard & Poor's Ratings Services said it lowered its long-term rating on debt issued for Dowling College, N.Y., to B from BB.
The rating remains on CreditWatch with negative implications. The debt is a general obligation of the college.
"On May 24, 2012, we placed our rating on Dowling College's debt on CreditWatch with negative implications reflecting our view of the college's significant enrollment decreases, low financial resources ratios, and termination of a commercial bank's line of credit following a financial covenant violation," said Standard & Poor's credit analyst Emily Avila.
Dowling College faces additional business risk due to its loss of access to the credit markets and monetary support from the board, recent sale of university real estate investment assets to cover operational needs, and transitional risks associated with the significant turnover of the management team.
"Therefore, we have lowered our rating on the college's debt, reflecting our assessment of continued dramatic enrollment decreases and resulting pressures on net tuition revenue," Avila added.
Although the college has the capacity to make debt service payments, adverse business, financial, or economic conditions will likely impair its capacity to meets its obligations on the bonds.
The 'B' rating reflects Dowling College's: loss of access to the credit markets; historically negative operating results; significant enrollment decreases at the undergraduate and graduate levels in the past four years; low financial resources, with expendable resources of $14 million representing 17% of operations and 25% of debt at fiscal year-end 2012; heavy budget reliance on tuition and other student-generated revenues, which account for 96% of fiscal 2012 operating revenues and have increased recently; very small $2 million endowment compared with a high debt level of $56 million; moderately high maximum annual debt service burden of 8%; and continued turnover in key management positions.
Dowling College remains on CreditWatch pending receipt of cash flow projections that demonstrate the college's source and uses of cash through 2014. The agency expects the college to provide this additional information and to resolve the CreditWatch within the next 60-90 days. It could take further downward rating actions if projections show a significant weakness in the college's cash position.
