SAN FRANCISCO - Moody's Investors Service downgraded Hastings College of the Law to A2 from A1 May 21, saying student demand has declined and operating performance has deteriorated.
In addition, Moody's expects continued weak cash flow as Hastings continues to execute its plan to reduce law school enrollment while holding tuition flat for the next three fiscal years.
The college is two years into its three-year plan to reduce enrollment by 80 students a year, with a further and final reduction expected in fall 2014.
"The A2 rating is supported by Hastings' affiliation with the University of California, low leverage, healthy flexible reserves and strong debt service coverage from pledged revenues," Moody's analysts said in a credit ratings report. "The rating also incorporates the fundamentally challenged niche law school market and pressure on net tuition revenue."
The University of California is rated Aa2, with a stable outlook.
Overall softness in the law school market has resulted in increased competition and declining student demand for Hastings, Moody's said. The matriculation rate dropped to 21% in fall 2013 from 32% in fall 2009.
The stable outlook is based on the college's recent strategic growth of monthly liquidity which would enable it to fully repay outstanding debt and sustain multiple years of weak operating performance, Moody's said.
The college has financial resources that provide "excellent coverage" of debt and operations, according to analysts. Monthly liquidity of $52 million has grown by 84% over the past five years and now provides almost a full year's coverage of expenses.
Hastings, founded in 1878, was the first law school of the University of California. Its downtown San Francisco location helps boost its market position, as well as its UC affiliation. The affiliation provides branding benefits, the ability to invest college funds through the UC Treasurer's Office, and participation in the UC Retirement System.
The school has $23 million of outstanding debt rated by Moody's.
