Standard & Poor's Ratings Services has lowered its rating to AA-minus from AA on the $50 million series 2010 and $119.3 million series 2007 revenue bonds issued by the New York Dormitory Authority for Vassar College.
"The downgrade reflects our view of continued pressure on Vassar's credit profile from the unsustainable and increasing supplemental endowment draw levels coupled with several years of full-accrual operating deficits and plans for additional debt within the next 12 months," said Standard & Poor's credit analyst Charlene Butterfield. "Though the college has balanced its recent budgets on a cash basis, excluding depreciation expense, it is due to significant supplemental endowment draws that continued through fiscal 2012," said Butterfield.
Standard & Poor's believes that the pressure exerted on the income statement by depreciation and financial aid, the operating deficit trends on a full accrual basis, and financial resources that have decreased over time compared with operating expenses and debt, reflect an overall credit profile that is more commensurate with the lower rating.
At the lower rating, Vassar has greater flexibility over time to produce positive net tuition revenue, lower the endowment spending rate, and diminish operating deficits, while accommodating additional debt.
The college's strong demand and financial resources ratios remain solid for the rating.
Additional credit factors that support the rating include: stable enrollment and good selectivity; healthy endowment level; and strong capacity for and history of fundraising.
Partially offsetting credit factors include: above-average endowment spending; consistently negative operating performance on a full accrual basis; and a somewhat back-loaded debt service schedule generating a moderately high debt burden in 2046, though we expect the college will grow into the debt service over time.
The stable outlook reflects Standard & Poor's view that Vassar will maintain strong student demand, exceptional selectivity and retention rates, healthy financial resources, and strong fundraising capacity for the two-year outlook period. Standard & Poor's expects management to continue lowering the endowment spend rate to sustainable levels and reducing full accrual operating deficits, while producing positive net tuition revenue during the next one to two years.
Standard & Poor's expects that the currently strong financial resources will allow Vassar to absorb the upcoming debt issuance, and allow it to reach a financial equilibrium on a full accrual basis. Standard & Poor's does not expect to revise the outlook or rating during the outlook period.
Vassar is a private, liberal arts college located in Poughkeepsie, N.Y.