Moody's Investor's Service downgraded Yeshiva University further into speculative territory Wednesday, dropping the school to B3 from B1.
Moody's analyst Emily Schwarz and senior analyst Karen Kedem pointed to what they said was extremely thin and unstable unrestricted liquidity. At the end of fiscal year 2013, if one excludes a fully drawn line of credit, the university had 49 days of cash on hand.
"Increasingly severe operating deficits require extraordinary endowment draws and release of temporarily restricted net assets," Schwarz and Kedem said. "The university projects fiscal year performance will be similarly weak to fiscal year results."
Further, the analysts note there is narrow headroom on external credit facilities covenants, cross-default provisions on the lines, and expiration of one of the lines on June 1.
Also a negative for the rating, the analysts said, is that the school's bond debt is subordinate to its other debt.
For strengths, the analysts pointed to the school's real estate assets in Manhattan and the Bronx that might lead to full recovery for bondholders.
The university has strong donor support and healthy revenue diversity, the analysts said.
Moody's dropped Yeshiva to B1 from Baa2 on Jan. 9. It kept the university on review for a further downgrade.
On Wednesday Moody's dropped the school to B3 and took it off review. It retains a negative outlook on the school's $315 million in rated debt.
"Yeshiva University has made significant progress since Moody's previous downgrade on Jan. 9," Yeshiva University director of media relations Yaniv Matthew said. "We are surprised by this decision as the material facts in the report have, in fact, improved since the previous downgrade. As we stated in January, we continue to move forward aggressively with a range of initiatives that address issues raised by Moody's and that will have a positive impact on our future."
On Feb. 3, Standard & Poor's said it was maintaining its A rating on the school. The rating assumes that the school will be able to roll over its $60 million note into long-term financing at its expiration on May 31, S&P analyst Carolyn McLean said. Concern about this ability has been raised by the Moody's downgrade, McLean said.
Although much of it is restricted, the university has $1.35 billion in long-term investments as of Sept. 30, 2013. Of this total, 21% could be liquid within three days and 48% could be liquid within three months. "This makes us comfortable with the current rating of 'A'," McLean said.
Yeshiva is a university of Jewish and secular studies based in New York City. It is associated with the modern Orthodox branch of Judaism. It has about 3,000 undergraduate and 3,500 graduate students.
