Weaker-than-expected performance brings downgrade to a university in Missouri

Register now

Webster University was dealt a two-notch downgrade by Moody’s Investors Service on Monday over the school's weaker-than-expected financial performance and low debt service coverage that is expected to extend into fiscal 2019.

The rating agency downgraded the school, which has suffered heavy revenue declines and missed budget goals, to Baa1 from A2. The outlook is negative. The school has $50 million of debt issued through the Missouri State Health and Educational Facilities Authority.

“Financial reserves and revenue declined precipitously during the last five years with additional reductions forecasted for fiscal 2019 due to ongoing deficit operations," Moody's said

Moody’s said that the school is looking to balance its operations through spending reductions but said it will prove challenging absent restoration of tuition revenue growth. “Management is trimming expenses with the intent to improve operations and restore a balanced budget by fiscal 2021,” said Moody’s.

In the past two years the school has realized more than $1 million in cost savings for top administrative salaries. It has also implemented a voluntary retirement incentive program for faculty and staff that created more salary savings. The school has closed 14 metro and military locations that were under-performing, also resulting in a reduction of administrators and staff.

In fiscal 2018, Webster had approximately $175 million of operating revenue and over 8,100 full-time equivalent students in fall 2018. The rating agency said that enrollment had been on a steady decline over the last five years. The decline in enrollment means a decline in the net tuition revenue. The total net revenue from tuition and fees declined by almost $21 million between academic years 2011 and 2016. Webster’s operating revenues are largely driven by net tuition revenue.

The school has a distinctive business model, with a primary residential undergraduate campus in Webster Groves, outside of St. Louis. It also has multiple metropolitan and military base campuses in 19 states and seven foreign countries — Switzerland, Netherlands, Austria, Ghana, Greece, Thailand and China — as well as extensive online programming.

For reprint and licensing requests for this article, click here.
Higher education bonds Ratings Missouri