While reiterating its current stable outlook for the U.S. Higher Education sector, Moody’s Investors Service cautions that conditions have worsened and that its rating outlook could turn negative by 2009, according to a mid-year outlook issued to reflect changing conditions.
“Despite current challenges, the U.S. higher education sector retains formidable credit strengths and operates under a resilient business model that limits the influence of individual customers and suppliers, and largely prevents rapid deterioration of revenues that can occur in sectors like heath care,” said Moody’s Vice President Roger Goodman, author of the report. “As in prior periods of economic weakness, most colleges and universities enjoy relatively consistent student market demand and have thus far sustained good pricing ability.”
While the underlying positive factors have led Moody’s to maintain a stable outlook for now, a number of negative factors highlighted in the rating agency’s January outlook have worsened and may worsen still more, prompting the publication of an updated outlook.
“These include a generally bad economic environment that may increase the financial needs of families and possibly influence family choices among private, public four-year, and community college options,” said Goodman.
He said weak investment markets will likely drive investment losses in endowment and weaken balance sheet strength at most institutions. Moody’s expects median endowment returns to be negative for the first time since 2002, likely in the mid-single-digit range for fiscal year 2008 for most institutions.