Moody's Investors Service said it has upgraded to Aa3 from A1 the rating on Liberty University, Va.'s Series 2012 taxable bonds with $99 million outstanding.
The upgrade reflects Liberty's remarkable momentum in revenue growth and cash flow from operations. This momentum, if continued, will produce sufficient cash to fund transformative capital investments as well as to build reserves over time.
The growth in revenue and cash and investments makes Liberty a true outlier in Moody's portfolio of not-for-profit universities. Between FY 2008 and FY 2012, operating revenue grew 630%, while total cash and investments increased 148%--more than twice the growth of any other rated university on either measure. The rating outlook is stable.
The upgrade and Aa3 rating reflects the increasing scope of the university's activity (up 14% to $728 million based on draft information for fiscal 2013), its large pool of financial reserves ($728 million of total financial resources in FY 2012), uncommonly strong operating performance, and discipline around building and maintaining reserves.
Cash and investments increased $295 million in fiscal 2013, surpassing the $1 billion mark based on draft reports.
The university's strongly religious character is both a strength and a challenge as it has successfully attracted a growing portion of those students seeking this type of experience but will limit appeal to a broader audience. Additional credit challenges include limited revenue diversity with 89% reliance on student charges based on draft fiscal 2013 data, modest fundraising, and limited pricing power with net tuition per student of $10,346 and brand identity built partially around affordability.