Rutgers University Outlook Revised to Negative by S&P

Standard & Poor's Ratings Services said it revised its outlook to negative from stable on Rutgers University, N.J.

"The outlook revision to negative and affirmation of the AA long-term rating reflects our view that Rutgers faces increased credit risk from the scheduled (effective) assumption this summer of substantial assets and related liabilities of University of Medicine & Dentistry of New Jersey (UMDNJ; BBB-plus/developing SPUR) associated with the implementation of the New Jersey Medical and Health Sciences Education Restructuring Act passed by the New Jersey legislature on June 28, 2012, signed into law by the governor on Aug. 22, 2012, and effective July 1, 2013," said Standard & Poor's credit analyst Ken Rodgers.

Essentially, the act shifts the state's medical educational and teaching programs mainly to Rutgers University and represents a new mission for the university as heretofore its involvement in the health sciences has been limited to a nursing school and a genetics program. Rutgers is planning on refinancing approximately $456 million of debt it will assume from UMDNJ and financing other capital projects it has underway or in development sometime later this year with a large bond issue early this summer.

"The negative outlook reflects our belief that the preparation for and implementation of the New Jersey Medical and Health Sciences Education Restructuring Act will most likely lower operating performance and increase leverage, which, in turn, is likely to lead to a lower rating, although we expect Rutgers University's student demand to remain strong. In addition, the higher education funding environment and Rutgers University's capital program is also pressuring the rating as there hasn't been any meaningful improvement in key financial resource metrics in the past several years. We could possibly lower the rating to as low as the A rating category shortly before or at the time Rutgers' debt plans are launched to effectuate the major provisions of the act," added Rodgers.

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