Moody’s Investors Service Tuesday downgraded Spelman College’s debt rating to A1 from Aa3.

The rating action affected $86 million of outstanding rated debt issued through the Georgia Private Colleges and Universities Authority and the Fulton County Development Authority. The rating outlook was revised to stable from negative.

“The downgrade reflects the weakened balance sheet from investment losses to cushion debt combined with relatively thin unrestricted and liquid investments,” said a report by Moody’s analyst Diane Viacava.

Spelman is a private, independent, liberal arts college for women that was founded in 1881. It is classified as a historically black college or university. Some 2,191 full-time students were enrolled in the fall of 2009.

Moody’s said Spelman is challenged by a leveraged balance sheet with $106 million of direct debt, a high level of national competition from wealthier private institutions and lower cost public universities actively recruiting African American women. It has limited liquidity with unrestricted financial resources declining to $49 million in fiscal 2009 from $104 million the previous year, and a high degree of operating leverage with debt service equating to 8.4% of operating expenses in fiscal 2009.

Spelman’s credit strengths include healthy student market demand supported by a national draw for the college’s unique market niche as one of only two liberal arts college for African American women, successful fundraising with a major campaign currently underway, membership in the Atlanta University Center Consortium with all-male Morehouse College and Clark Atlanta University, and healthy growth of net tuition revenue reflected in a 30% increase per student in fiscal 2009 from 2005.

The college has no debt plans for next few years. Most of its debt is fixed rate.

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