S&P lowers University of Arizona outlook to negative

S&P Global Ratings revised its outlook on the University of Arizona's debt to negative from stable Wednesday, citing the school's deteriorating finances. 

The move came a month after Moody's Ratings took similar action. 

"The negative outlook is based on the anticipation of increased deficit operations and pressured liquidity," S&P analyst Laura Macdonald said in a statement.

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S&P affirmed its AA-minus rating on the university's system revenue bonds, as well as its A-plus ratings for certificates of participation and Stimulus Plan for Economic and Educational Development bonds but warned of a downgrade if the school fails "to make progress toward structural balance, or if the liquidity position weakens significantly or enrollment declines."

The rating agency added, the outlook could be restored to stable if there is "progress toward fiscal balance while maintaining or improving (the university's) financial resources from fiscal 2023 levels" amid the expectation that enrollment remains stable. 

In a statement, the Tucson-based university, which projected a $177 million budget deficit, highlighted S&P's affirmation of its debt ratings.

"The ongoing implementation of our financial action plan will assure that the university stands on solid financial footing and continues to provide outstanding educational experiences for our students and research that drives economies and improves lives," the statement said.

The Arizona Board of Regents (ABOR)  approved a plan in December that included enhanced financial reporting and expenditure controls after cash on hand fell below the board's minimum 140 days requirement.

Moody's said governance risk was a key driver of its March 4 action revising the outlook on the university's Aa2 system revenue bond and other ratings to negative from stable, citing management turnover and evidence of weaker financial monitoring.

In December, university Chief Financial Officer Lisa Rulney resigned and was replaced on an interim basis by ABOR Executive Director John Arnold. On Tuesday, university President Robert Robbins announced he will step down when his contract ends June 30, 2026.

"Should ABOR select a new president who is prepared to start sooner than the end date of my contract, I will ensure a smooth transition to my successor and step aside earlier," Robbins said in a letter to the university.

The board last month reduced Robbins' salary by 10% and eliminated his performance compensation as it continued to work on resolving financial challenges that occurred under his watch.

Gov. Katie Hobbs, who has been closely monitoring the university's situation, said Tuesday she looks forward to continuing "to work to address the University of Arizona's finances and restore the public's trust in one of our state's most important public institutions." 

"From day one I have been laser-focused on addressing fiscal mismanagement and ensuring there is proper oversight and accountability from ABOR to protect our public universities," she said in a statement. 

Cecilia Mata, who was elected ABOR's chair in March after Fred DuVal stepped down from the leadership role, said a nationwide search for Robbins' replacement "will move forward with expediency." 

The university's acquisition of for-profit, online Ashford University, which was rebranded University of Arizona Global Campus and which owes $72 million in loan relief and repayments, was cited by Moody's as a risk factor in terms of its integration. 

The university had nearly $1.3 billion of bonds outstanding at the end of fiscal 2023.