Moody's Investors Service said it has downgraded the University of Kansas's issuer rating to Aa2 from Aa1.
Concurrently, Moody's rated university debt was downgraded by one rating level. The rating action affects $397 million of rated debt issued through the Kansas Development Finance Authority.
The rating outlook is stable.
The downgrade of the University of Kansas is based on its thin operating performance and limited liquidity as it confronts a period of additional revenue pressures related to the state's budgetary challenges, as well as declining enrollment.
The state of Kansas was recently downgraded to Aa2 from Aa1. Guaranteed tuition pricing for undergraduate students, multiple years of modest enrollment declines, combined with state funding that remains below pre-recessionary levels results in thin operating cash flow. Deteriorating unrestricted financial reserves due to weakened operations reduce the university's financial flexibility.
The Aa2 rating reflects the university's position as the state's flagship university with broad programmatic offerings and a growing research profile. The rating also incorporates KU's low balance sheet and operating leverage, a result of historically strong state capital support and oversight by a single board of higher education for public universities as well as the state's issuing authority.
The stable outlook reflects expectations that the university will carefully balance identified strategic investments against constrained revenues, without significant further material reduction in liquidity, continued low leverage and sufficient debt service coverage by pledged revenue.
