New Jersey City University dropped to near junk status by Fitch ahead of sale

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Declining state support and COVID-19-related funding pressures triggered a second downgrade to New Jersey City University in advance of a $52 million borrowing.

Fitch Ratings downgraded NJCU one notch to BBB-minus from BBB Monday and retained a negative outlook, citing the public university’s revenue limitations and high debt load. The rating is on par with Moody’s Investors Service, which lowered `the college’s bond rating by two notches to Baa3 from Baa1 on April 29.

New Jersey City University lost $5.1 million in state appropriations during the final quarter of the 2020 fiscal year calendar.

The downgrade to Fitch’s lowest investment grade rating applies to roughly $52 million of revenue refunding bonds NJCU is slated to sell this month through the New Jersey Educational Facilities Authority and approximately $135.7 million of outstanding debt.

“The BBB-minus ratings reflect NJCU's thin liquidity and high leverage, including capital leases for strategic projects to come online in the next few years, which leave less financial flexibility to navigate coronavirus-related challenges,” Fitch analyst Tipper Austin wrote. “The maintenance of the negative outlook reflects the high degree of uncertainty about state operating support over the next two years and about fall 2020 enrollment.”

University officials are expecting a 15% drop in fall enrollment because of the COVID-19 impact on employment and income levels, according to Fitch. NJCU, which attracts many first-generation college students from poorer families, is planning a hybrid fall semester combining in-person and virtual classes.

The NJCU borrowing will include $35.2 million of tax-except bonds and $24.5 million in federally taxable securities. The sale will refund the university’s series 2007F, series 2008F, series 2010F, series 2010G and 2015A bonds.

The negotiated deal will feature Morgan Stanley as senior manager and Raymond James as co-manager, according to a resolution approved at the March 24 NJEFA meeting. Hilltop Securities will serve as financial advisor on the upcoming sale, which is not listed on the Dalcomp calendar for this week or next week. Fitch said the exact timing of the sale will be determined by market conditions.

NJCU lost $5.1 million of state funding — about a fifth of its base state funding allocation for the year — when New Jersey froze a portion of higher education operating appropriations for the final quarter of the 2020 fiscal year, according to Fitch. Austin said while federal stimulus aid would limit the magnitude of cuts to New Jersey’s support for public universities during the next year. NJCU will likely be faced with funding pressure for “the foreseeable future.”

NJCU has grappled with liquidity obstacles the past several years stemming from weak cash flow levels that resulted in spending down reserves to pay debt service. The university is planning to use budgetary savings from the refunding bonds to preserve near-term liquidity over the next two years, according to Austin. Additional relief will be provided through $8.6 million of aid from the federal Coronavirus Aid, Relief, and Economic Security Act.

The NJCU press office did not immediately respond for comment about the Fitch downgrade or upcoming bond sale.

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Downgrades Higher education bonds New Jersey Educational Facilities Authority New Jersey Fitch