Standard & Poor's Ratings Services said it lowered its rating on Fulton County Development Authority, Ga.'s series 2007 revenue bonds, issued for Morehouse College, one notch to A-minus from A.

The outlook is stable.

The downgrade reflects Standard & Poor's assessment of the college's weaker-than-expected finances in fiscal 2011, highlighted by a sharp decrease in operating performance in fiscal 2011, coupled with continued operating pressure in fiscal 2012.

While management is projecting another deficit in fiscal 2012, it expects a much lower deficit compared with the $9.7 million deficit in fiscal 2011.

The downgrade also reflects the rating service's view of the college's weakening demand and enrollment characteristics, highlighted by fluctuating freshmen applications and several years of decreasing headcount that has contributed to weaker operating performance; there, however, appears to be some improvement in fall 2012. Additional concerns include Standard & Poor's assessment of the college's turnover in several senior management positions, including the president and chief financial officer.

The stable outlook reflects Standard & Poor's opinion of Morehouse's solid liquidity, which affords management some flexibility while working through operating challenges, and niche as a premier, historically black college.

"We could consider a negative outlook revision if operating and demand pressure were to persist in fiscal 2013 and if the college were not able to achieve its projected budget, which incorporates balanced operations on a cash basis. In our opinion, additional factors that could cause a negative rating action include liquidity deterioration or the issuance of additional debt," said Standard & Poor's credit analyst Margaret McNamara. "We, however, believe a higher rating during the outlook's two-year period is currently unlikely due to the college's weaker operating performance over the past couple of years."
The rating also reflects Standard & Poor's opinion of Morehouse's: niche as a premier, historically black college; fairly selective demand indicators; expendable resources of 71.4% and 124% compared to operating expenses and debt; and manageable debt at 5.3% of adjusted fiscal 2011 operating expenses.

Standard & Poor's believes two consecutive years of operating deficits and inconsistent demand and enrollment somewhat offset these rating factors. According to management, there has been some improvement in these areas for fall 2012; in the rating service's opinion, however, it is too soon to tell if this is the start of a stabilizing credit profile.

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