NEW YORK - Moody's Investors Service said it has downgraded Mount Saint Mary's University, Md.'s rating to Ba2 from Ba1 on its outstanding bonds issued through Frederick County and removes the rating from watchlist for potential downgrade where it was placed on December 23, 2011. The rating outlook is negative.

The downgrade to Ba2 with a negative outlook is based on Mount Saint Mary's declining liquidity, its minimal headroom to maintain its 1.1 times debt service coverage ratio (DSCR) covenant with a DSCR for fiscal year end (FYE) 2011 of 1.18 times and 1.15 times projected for FYE 2012, which if breached could result in acceleration of its debt.

If bonds were to be accelerated, the university would have insufficient liquid funds to pay off the debt.

The Ba2 rating also incorporates the Mount's thin balance sheet cushion to debt and operations with limited ability to grow liquidity due to negative operating margins, as well as the credit positive factor of continued net tuition revenue growth aided by increased enrollment.

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