Moody's Investors Service has downgraded St. Mary's College of Maryland (SMCM) to A2 from A1.

This rating action impacts $36 million of the Series 2012A, 2006A and 2005A revenue bonds.

The outlook is stable at the lower rating. The downgrade is driven by annual enrollment declines from fall 2008 to fall 2013 compounded by a sharp and unexpected drop in fall 2013 freshman matriculants. The recent enrollment and associated revenue challenges significantly impact the college due to its small scale of operations and modest financial reserves.

This rating action concludes Moody's review of St. Mary's rating for downgrade, which was initiated on June 10, 2013.

The A2 rating reflects the college's niche role as the only solely public honors college in Maryland, its manageable debt burden, stable support from the State of Maryland, and strong financial management team capable of executing necessary expense reductions.

The rating also accounts for the college's moderate financial resources and small scale of operations which make adjusting to unexpected revenue declines more difficult. The college is highly dependent on student charges and is further challenged by the highly competitive student market.

The college's weak financial resource base and small size have historically been offset by the college's operating performance, pricing power evidenced by consistently strong net tuition revenue per student growth, and established market niche as the state of Maryland's public honors college. However, the college's recent events have highlighted the need for a stronger levels of reserves to better weather missed revenue and enrollment goals.

The stable outlook at the lower rating reflects the expectation that the university may face modest enrollment challenges in the near term, but will stabilize enrollment and revenues in the longer term as the college finesses its enrollment strategy, hires a new vice president of enrollment, a new director of admissions, and a new college president.

The stable outlook also reflects the expectation for stable to improved state appropriations and maintenance of financial resources.

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