Moody's Investors Service said it has downgraded The Sage Colleges, N.Y.'s long-term debt rating on the Series 1999 fixed rate bonds issued through the city of Albany Industrial Development Agency and the underlying rating on the Series 2002 variable rate demand bonds issued through the Rensselaer County Industrial Development Agency to B3 from B2.
The outlook is negative.
The Series 2002 bonds also carry an enhanced rating of A2/VMIG 1 based on Moody's joint default rating methodology and letter of credit provided by Manufacturers and Traders Trust Company (M&T rated A2/P-1 negative), which has a stated expiration date of June 30, 2015.
The B3 rating and negative outlook for The Sage Colleges reflects ongoing operating challenges due to stagnant net tuition revenue in an intensely competitive student market. Financial resources are weak and liquidity remains thin.
Sage has considerable bank debt with renewal and acceleration risks, in addition to a concentration of loans with a single bank. Nearly all of the fiscal year (FY) 2013 unrestricted funds are held as collateral for a cyclical cash flow operating line of credit, which places the Series 1999 fixed rate bondholders in a subordinate position that could negatively impact expected recovery in the event of default.
Further downward notching is precluded at this time due to positive preliminary FY 2014 operating results, which included substantial expense reductions implemented during FY 2014. Improvement is expected to continue into FY 2015, due to management's willingness and ability to institute budgetary cuts. Recent changes in management are expected to provide Sage with stronger budgeting and financial modeling capacity.
