LOS ANGELES — Moody's Investors Service and Standard & Poor's both downgraded the California Institute of Technology May 11 ahead of a $400 million taxable bond deal the school plans to price on May 14.
The unsecured general obligation bonds are expected to be fixed-rate bonds, with a bullet maturity in 2115, according to Moody's.
Moody's downgraded Caltech's long-term rating one notch to Aa2 from Aa1. S&P downgraded the long-term rating two notches to AA-minus from AA-plus.
"The downgrade is precipitated by this substantial new debt issuance which results in very high debt relative to financial resources and operations, combined with recent deficit operations and expectations of continued thin cash flow over the next few years," according to Moody's.
Moody's also affirmed Caltech's VMIG 1 short-term rating.
S&P lowered Caltech's existing debt, some of which was issued by the California Educational Facilities Authority, to AA-minus/A1-plus from AA-plus/A1-plus.
"The lowered rating reflects our view of Caltech's issuance of substantial additional debt, coupled with what we view as an aggressive debt profile," said Standard & Poor's credit analyst Jessica Matsumori.
Caltech, a private, non-profit institution in Pasadena, was founded in 1891.
Moody's said Caltech's rating reflects its global presence as an elite research institute and university with excellent student demand, growing financial resources and healthy liquidity to support operations.
The institute's longstanding management of NASA's Jet Propulsion Laboratory bolsters its research profile and adds scale and scope to Caltech's operations which are not reflected in Moody's financial data and ratios, analysts wrote.
Key credit challenges include weakening debt service coverage with expected continued deficit operations, according to Moody's calculations.
With this issuance, the institute will have approximately 80% of its outstanding debt in very long-dated bullet maturities, which would be expensive to restructure due to make-whole provisions, according to Moody's.
The short-term rating on $195 of million variable-rate demand bonds reflects S&P's view of both the ample liquidity and the sufficiency of the assets pledged by Caltech, according to Masumori.
The institute does not have additional debt plans for the next seven years.
