Standard & Poor's Ratings Services said it lowered its long-term rating on the New York State Dormitory Authority's outstanding bonds issued for Pace University to BB-plus from BBB-minus.
At the same time, Standard & Poor's assigned its BB-plus long-term rating to the authority's $71 million series 2014A and $27 million 2014B revenue bonds also to be issued for Pace. The outlook is stable.
"The downgrade reflects our opinion of Pace's weak pro forma financial resources ratios that, when combined with light, though positive, operating performance for the rating category, do not sufficiently offset the additional series 2014A and B debt and capital spending during the next few years," said Standard & Poor's credit analyst Charlene P. Butterfield. "Despite the pressure created by the additional debt, in our view, Pace's enrollment has stabilized, and financial management has improved in the past few years, and since fiscal 2011, the maintenance of operating surpluses provide stability to the financial profile, while the university completes its redesign of its Pleasantville campus."
Though the redesign of the Westchester campuses does present some risk to the financial profile, it could improve its attractiveness to students over the next several years. Relative financial stability compared with historical levels allows the university some cushion as it pursues its strategic objectives.
"The rating also reflects our view of Pace's limited revenue-raising flexibility offset by stable enrollment levels, maintenance of full accrual operating surpluses through fiscal 2013, and healthy growth in net tuition," added Butterfield.
The stable outlook reflects the expectation that, during the next one to two years, enrollment and overall demand will remain stable or demonstrate positive trends, and that financial performance will be consistently breakeven or better, on a generally accepted accounting principle basis.
The outlook also reflects the expectation that management will sell the Briarcliff campus according to the articulated schedule and expected price. While financial resources will remain low, depressed by significant other postemployment benefit liability and pro forma debt, they will not be further reduced during the next one to two years beyond current pro forma levels.
During the next one to two years, a negative outlook or downgrade could be considered if operating performance returns to deficit levels, if financial resources deteriorate from current pro forma levels, or if the university issues additional debt without significant growth in financial resources. Because of the low levels of financial resources and recent increase in debt, the rating agency does not view a positive outlook or higher rating as likely during the next one to two years. Beyond the outlook period, it could consider a positive outlook if Pace's operating surpluses are maintained at substantially higher levels, or if financial resources increase to soundly positive levels commensurate with an investment-grade rating.
