NEW YORK - Moody's Investors Service said it has downgraded Hastings College of Law, Calif.'s (Series 2003 and 2008 bonds to A1 from Aa3 and affirmed its Aa3 issuer rating. The outlook is revised to stable from negative.

The Aa3 issuer rating reflects Hastings' strong market position as an independent public law school affiliated with the University of California (Aa1/stable), strong net tuition revenue growth, healthy operating margins, and management that engages in long-term planning.

The rating also incorporates potential pressure on predominant revenue streams, particularly net tuition revenue given the college's decision to reduce JD enrollment by nearly 20% over the next three years and declining applications to law schools nationally, as well as state appropriation revenue with continued financial weakness at the state of California (A1/stable).

The A1 rating on the Series 2003 and 2008 bonds also incorporates a limited security pledge that represents only 29% of the total operating revenue.

This pledge excludes state appropriations and tuition from resident students (though the board could selectively designate these funds for debt service).

In FY 2011, the gross total operating revenue provided 20.2 times coverage of debt service, whereas the gross pledge for the bonds provided a weaker 5.8 times coverage.

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