S&P Global Ratings said it lowered its long-term rating on Missouri Western State University's (MWSU) series 2008, 2010B, and 2012 to BBB-plus from A-minus.
At the same time, S&P said it lowered its underlying rating (SPUR) on MWSU's series 2015 auxiliary system revenue bonds to BBB-plus from A-minus. The outlook is stable.
"We lowered the rating based on a deteriorating financial profile," said S&P credit analyst Gauri Gupta. MWSU has a growing operating deficit with a first time cash deficit in fiscal 2017 and subsequent weakening of the financial resources as measured by unrestricted net assets (UNA), which are no longer commensurate with the A rating category, Gupta said.
S&P assessed MWSU's enterprise profile as strong, characterized by a stable and tenured management team and a long history of operations as a four-year institution offering a broad array of programs and stabilizing enrollment with increase in total full-time equivalents (FTE) for fall 2017 after several years of decline coupled with some improvement in demand metrics such as better selectivity although matriculation and graduation continue to remain weak.
MWSU's financial profile is viewed by the rating agency as adequate, characterized by persistent full-accrual deficits that are widening in nature with a first year of cash deficit in fiscal 2017, subsequent weakening of the financial resources and decline in state support that it previously expected to increase for the next few years.
Combined, the agency said these credit factors lead to an indicative stand-alone credit profile of bbb-plus and a long-term rating of BBB-plus.
The stable outlook reflects its expectation that during the two-year outlook period, the university will continue to stabilize enrollment with modest growth in FTE going forward while maintaining demand metrics.
Although pressured, the agency also expects the university's steps to improve operations will result in narrower deficits for fiscal 2018 and beyond. At the same time, auxiliary system operations will continue to produce surpluses and adequate debt service coverage (DSC) and the university will maintain financial resources at least at current levels. MWSU is not expected to issue any additional debt.
The rating agency could take further negative rating action if enrollment starts to decline again such that full-accrual deficits widen or if financial resource ratios continue to weaken to levels no longer commensurate with current rating. A further decline in debt service coverage for auxiliary system revenue bonds would be viewed as a negative.
Although unlikely during the outlook period, an upgrade would be considered if the university continues to stabilize enrollment and operations improve toward break-even on a full-accrual basis while growing its financial resource ratios to levels commensurate with a higher rating.
