Temple’s Shaky Health

Moody’s Investors Service last week revised Temple University’s outlook to negative from stable as fiscal challenges at Temple University Health System may affect the school’s balance sheet.

Moody’s rates the university A1.

Temple University, located in Philadelphia, had roughly $370 million of outstanding debt as of June 30, 2009.

TUHS, which owns and operates Temple University Hospital, is a subsidiary of the university. The school is not liable for the hospital’s debt, but Temple’s bondholders have “indirect exposure” to the health system’s extremely weak operating profile, Moody’s said.

Moody’s rates TUHS Baa3 with a negative outlook. It had more than $300 million of outstanding debt as of June 30, 2009.

Temple and TUHS are connected through the School of Medicine and its emphasis on research. The school also conducts a clinical faculty practice plan, which partly secures Temple’s bonds.

“The negative outlook reflects Moody’s concerns of potential operating and liquidity pressures on the university due to financial stress at TUHS,” according to the report. “Any action of the university to provide financial support to the Health System or further deterioration of TUHS operations and reduction in Health System liquidity could result in a rating downgrade of the university.”

Within the next few months Temple University plans to refund debt and also issue $143 million of taxable Build America Bonds to help finance additional student residences, dining facilities, and a parking garage. The Pennsylvania Higher Educational Facilities Authority will serve as conduit issuer for the transactions.

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