Tuition revenue pressure nets Clarkson University a downgrade

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Revenue struggles from declining enrollment and tuition drove a one-notch downgrade for Clarkson University.

Moody’s Investors Service lowered Clarkson’s revenue bonds to Baa1 from A3 Thursday, citing the Potsdam, New York-based private university’s “remote location” near the Canadian border as a disadvantage for attracting students given the high number of public and private college alternatives throughout New York State.

Clarkson, which enrolls around 4,000 full-time students, has suffered from a high reliance on student charges and a declining cash flow that have hampered the university’s financial flexibility, according to Moody’s.

“The downgrade to Baa1 is driven by ongoing enrollment and net tuition revenue pressures, contributing to weakening operating performance,” Moody’s analyst Pranav Sharma wrote. “The weaker operating performance will limit growth potential of spendable cash and investments.”

The Moody’s downgrade affects $65 million of outstanding bonds issued by the Development Authority of the North Country. Moody’s also revised Clarkson’s credit outlook to stable from negative at the lower rating, citing expectation that the university’s operating performance will remain at least in line with its 2018 fiscal year levels thanks to a stabilization of enrollment this fall and expectations of “modest improvement” in reserves. Clarkson has a “manageable” debt burden with $72 million of debt outstanding, according to Moody’s.

Kelly Chezum, Clarkson University's vice president for external relations, noted in a statement that “strong” enrollment was achieved for the 2018 fall semester. She said enrollment was a challenge last year when New York State began offering free tuition to public colleges for in-state residents.

“Our fall enrollments for this fiscal year are very positive and we continue to deliver an education that is in demand by employers as well as students,” said Chezum.Clarkson is a leader in technological education and continues to deliver among the best returns on education in the nation.”

Clarkson, which has satellite campuses in Schenectady and Beacon, New York, generates approximately $134 million of operating revenue, according to Moody’s. The university offers bachelors, masters, and doctoral degrees with a heavy focus on technology and engineering programs.

Sharma said Clarkson could get upgraded if the school demonstrates a “substantial” increase with financial resources tied to debt and operating expenses. The school could be line for another downgrade if there is material declines in liquidity or weakening of operating performance. The outstanding bonds are unsecured general obligations of the university with no debt service reserve fund requirement.

“For the fall 2018 class, the freshman application volume declined for second year but management was successful in recruiting 798 freshman students, in line with its budget, while managing the financial aid budget,” said Sharma. “Management’s efforts to diversify and expand the university’s programmatic offerings and to differentiate itself from other alternatives will be an important factor in maintaining its competitive position.”

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