Moody's Investors Service said it has downgraded the long-term debt rating on the University of Louisville's outstanding general receipts and consolidated educational building debt to Aa3 from Aa2.
The rating outlook is revised to stable from negative.
The Aa3 rating with the stable outlook is affirmed for specific series of bonds that are enhanced by the commonwealth of Kentucky's intercept program.
The downgrade to Aa3 reflects the university's multiple years of weak operating performance that is expected to continue over the next one to two years due to ongoing state funding pressure, constrained federal research dollars, and challenges at the physician practice plan and clinical operations.
Operating deficits combined with capital investments have resulted in narrowing liquidity and a greater reliance on the associated foundation.
The Aa3 rating incorporates UL's market position as a leading research university in the commonwealth of Kentucky and strong tuition growth, which should provide the basis for financial stabilization in out years.
Moody's also downgraded the ratings on the University of Louisville Foundation's outstanding revenue bonds to Aa3 from Aa2. The outlook is stable.
The University of Louisville Foundation's downgrade to Aa3 reflects the University of Louisville's ongoing operating challenges. The two entities are integrally related, and as such, the ratings are heavily correlated.
The foundation is strategically important to the university as it provides healthy fund raising, endowment oversight, property acquisition and management, and research development activities supporting UL's strategic plan. ULF has a stable balance sheet, providing an ample cushion to debt of over three times. Challenges incorporate rising debt, including guarantees provided to debt at the university, and heavy dependence on gifts and investment income.
