Moody's Investors Service last week placed the University of Medicine and Dentistry of New Jersey on watch list for possible downgrade due to higher than expected operating losses for the first half of fiscal 2008, which began July 1, and increasing risks to the school's debt structure.

Moody's rates UMDNJ's $668 million of outstanding debt Baa2 while Standard & Poor's assigns its BBB to the credit.

Through the New Jersey Educational Facilities Authority, the school is looking to issue $750 million of bonds to refinance previous debt, including variable-rate and auction-rate securities, and generate $50 million of new-money for capital projects, according to a request for a direct letter of credit for the university on NJEFA's Web site. Those liquidity proposals are due today.

UMDNJ's Series 2002B variable-rate bonds for $95 million are insured by Ambac Assurance Corp. and carry extra liquidity from Bank of America, yet the bank can terminate that enhancement if Ambac falls below a Aa credit rating for more than 30 days, according to a Moody's press release. In addition, the school has a Series 2001A auction-rate bond for $34.2 million that will cost the university higher fees in interest payments due to the recent volatility of the auction-rate market. MBIA Insurance Corp. insures the auction-rate debt.

UMDNJ showed an operating loss of $32 million during the first six months of fiscal 2008, compared to the school's total operating loss of $26 million during the entire previous year, according to a Moody's statement.

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