UConn gets student fee revenue bond downgrade from Moody’s

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The University of Connecticut on Thursday received a hit from Moody’s Investors Service, which cited COVID-19 related pressures in downgrading the school’s student fee revenue bond rating to A1 from Aa3.

Moody’s also revised the outlook to stable from negative. The move affects about $200 million of bonds, Moody’s said in a statement.

The University of Connecticut's main campus is in Storrs.

A school official said Moody's was too quick to pull the trigger.

"We would have preferred Moody’s to be patient until the COVID-19 temporary blip was over," said UConn Manager of Treasury Services John Sullivan. "While we think UConn’s $200 million in outstanding special obligation student fee revenue debt deserves a better rating, our enrollment is up, and while the coverage ratio has been impacted by the once-in-a-100-years pandemic, we are still meeting our coverage ratio despite the pandemic, and our coverage ratios are projected to increase in the future once again."

The state has a roughly $3.6 billion surplus, added Sullivan, who held out hope for further aid.

The downgrade also comes amid an alarming spike in coronavirus cases that is especially affecting higher education and other industries, such as hospitality and air travel.

COVID-19 cases have been reported among at least 252,000 students and employees at more than 1,600 higher education institutions.

“The higher education sector has tried to deal with the pandemic in various ways, and we are seeing differing outcomes as a result,” said Tom Kozlik, head of municipal strategy and credit for Hilltop Securities.

Moody’s maintained its A1 rating and stable outlook on $1.5 billion of UConn 2000 bonds based on its A1 rating of the state and payment of debt service on the bonds.

The rating agency cited “a combination of longer-term demographic and economic pressures both for the university and for the state combined with more immediate challenges driven by the coronavirus pandemic, which we consider a social risk under our [environmental, social and corporate] framework.”

Moody’s said the latter includes substantial thinning of pledged revenues supporting debt service and generally weaker operating performance expected for fiscal 2021.

UConn has more than 29,000 full-time equivalent students across multiple campuses, with its flagship in Storrs. Regional campuses are in Avery Point, Hartford, Stamford and Waterbury.

The school’s revenue base, according to Moody’s, is nearly $1.5 billion. The school, it said, has total cash and investments of close to $1 billion.

Student fee revenue bonds are payable from pledged revenues, which include certain mandatory student fees and net revenues of the student housing, dining and parking facilities.

For fiscal 2019, according to Moody’s, the total pledged revenue amounted to about $179 million, and revenue available for debt service provided 5.3 times coverage.

“With the coronavirus pandemic adding considerable operational disruption for fiscal 2021, pledged revenue and coverage will materially narrow,” Moody’s said.

“Favorably, UConn’s strong student demand provides good prospects for restoring both pledged revenue and coverage closer to historical levels in the 5 to 6 times range once the impact of the pandemic subsides.”

The university's debt profile includes about $1.7 billion of general obligation bonds issued as part of the UConn 2000 infrastructure improvement program.

“With the state's own fiscal challenges, longer-term prospects for growth in state funding are constrained as well,” Moody’s said.

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Coronavirus Moody's Downgrades Connecticut University of Connecticut Higher education bonds Tom Kozlik Hilltop Securities