Moody's Investors Service said it has downgraded the long-term rating on Southwestern University, Texas's revenue bonds, Series 2004A and 2004B to A2 from A1.

The bonds were issued through the Crawford Education Facilities Corporation.

Concurrently, the short-term rating on the Series 2004B variable rate bonds was changed to A2/VMIG 1 from A1/VMIG 1. The rating outlook has also been revised to negative from stable.

The downgrade to A2 is driven by the ongoing structural deficit at Southwestern University, reflected by a weak average operating margin of -8.1% for the three fiscal years ended June 30, 2012 (as calculated by Moody's), which has contributed to a substantial decline in the university's financial resource base since FY 2008, as well as stagnate net tuition per student and overall net tuition and fee revenues, and a high and growing tuition discount rate.

The A2 rating also reflects Southwestern's market niche as a small, selective liberal arts college in a competitive student market, generally growing enrollment, healthy philanthropic support and strong balance sheet cushion relative to debt and operations.

The negative outlook reflects our expectation that the university will continue to generate weak operating performance; experience stagnant net tuition revenue; and experience slower financial resources growth than peers.

The A2/VMIG 1 rating for the Series 2004B variable rate demand bonds reflect the credit quality of the university as well as the sufficient self-liquidity to support the tender features of its variable rate demand bonds.

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