Moody's Investors Service downgraded Howard University to Baa3 from Baa1 on July 3.
The downgrade affects $290 million. Moody's retains a negative outlook on the Washington, D.C.-based school.
The downgrade was primarily due to the "precipitous deterioration" of Howard University Hospital's financial condition and to continuing changes in the university's leadership, said Moody's vice presidents Edith Behr and Dennis Gephardt.
The hospital lost $37 million in fiscal year 2014 as a result of declining admissions and a weakening payer mix. The hospital was unable to follow through on a planned reduction in its staff count in fiscal 2014 because unions blocked it. This prevented the hospital from realizing anticipated savings.
Federal revenues have not kept up with expenses, Behr and Gephardt said. The receipt of grants is also down.
The hospital has substantial pension obligations and operating leases.
Finally, most of the university's leaders are either interim appointments or new to their positions.
For strengths, the university has received one proposal and expects to receive another for a joint venture for the hospital, the analysts said. Applications to the university increased by 20% in fall 2014. The school's total financial resources per student compares favorably to other schools in the Baa category. And the university has $250 million in board-designated funds that could be called on.
The analysts explain their negative outlook based on expectations of continued hospital financial problems and a possible narrowing of the university's liquidity.
Howard University interim president Wayne Frederick responded, “We are actively charting a viable and sustainable course for the hospital that will allow us to continue to serve the most vulnerable citizens of the District of Columbia. Our excellent health sciences programs and the preparation of stellar clinicians remain a top priority for the University, and so we are approaching this endeavor with great urgency. As acknowledged by Moody's, the University is in solid financial standing with a stabilized enrollment and the highest endowment in University history, nearly $600 million.”
