Moody's Investors Service said it downgrades Mills College, Calif.'s debt rating to Baa3 from Baa2.
The rating action affects the series 1997, 2005A and 2005B bonds issued through the California Educational Facilities Authority. The outlook is negative.
The downgrade to Baa3 reflects Mills College's continued deficit operations, which will be increasingly difficult to balance given the college's fundamentally challenged student market with volatile enrollment, stagnant net tuition per student and weak matriculation of incoming students.
The college relies on elevated endowment draws to fund debt service and operations (Moody's adjusted operating revenue includes a 5% endowment spend).
The rating also reflects the college's thin unrestricted liquidity available to cover operations (about 2.5 months of monthly days cash on hand for FY 2014).
Offsetting these factors and holding the rating at Baa3, are a healthy overall financial cushion to debt and operations for the rating category, a conservative debt structure, and historically strong fundraising which has allowed the college to maintain its financial resources despite elevated spending.
The outlook remains negative reflecting the expectation the college will remain challenged to improve operating performance over the next three years given a lower than expected Fall 2014 entering class.
