Moody’s Investors Service downgraded Yeshiva University to Baa2 from Baa1 Oct. 9, citing the school’s weak liquidity, operating deficits and uncertainty about litigation against the university.
Moody’s action on Wednesday affects $323 million in debt. Moody’s kept the rating on review for a further downgrade.
Yeshiva is a Jewish university of Jewish and secular studies based in New York City. It has about 3,000 undergraduate and 3,500 graduate students.
The downgrade is due to several factors, said Moody’s assistant vice president Emily Schwarz and vice president Kimberly Tuby. Among these are the school’s limited liquidity and dependence on fully drawn operating lines of credit. Yeshiva is expected to breach a covenant on its lines of credit for a second year, which would enable the bank to accelerate payment. The school also has “severe” cash flow deficits resulting in balance sheet erosion and negative debt service coverage.
The school has weak disclosure practices. Finally, the analysts are concerned that Yeshiva may face reputational and financial impacts from ongoing litigation against the university.
On the other hand, Yeshiva has had some success recently in fundraising and has recently gained new members of its financial management team.
The analysts expect the university to maintain “orderly” access to capital markets and that its operating performance should start to improve in fiscal year 2014.
The analysts will examine a number of factors in the downgrade review. A failure to grow internal liquidity or maintain access to external liquidity is the chief possible trigger of a further downgrade, they said.
"A strong rating for the university is of paramount importance and we take this opinion by Moody's very seriously," said Yeshiva University spokesman Matthew Yaniv. "Our undergraduate enrollment numbers have grown steadily over the last two years, our fundraising efforts continue to improve, and we have made some new additions to our financial management team, including the recent hiring of a new chief financial officer with significant experience in higher education. Near term budget tightening and strategic planning are priorities the president, his management team, faculty advisors, and the board of trustees are working on together to bring financial stability and health that will ensure the university's vibrant future."
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Corrected October 10, 2013 at 11:25AM: Updated to include a statement by Yeshiva University.