Steep enrollment declines sunk Sage College in Albany, N.Y. to the lowest credit rating of any continental U.S. higher education institution rated by Moody’s Investors Service.

Moody’s downgraded the private school one notch to Caa1 from B3, with a negative outlook, Monday citing a continued weakening of the school’s financial viability from heavy drops in tuition revenue. It's the lowest mark of any Moody’s-rated higher education credit except the C-rated University of Puerto Rico.

Moody's Investors Service downgraded The Sage College to Caa1 from B3. Bloomberg

Sage has been unable to cover debt service from operating cash flow in three of the past five years and has exhausted its own unrestricted liquidity, according to Moody’s analyst Pranav Sharma. The college is now relying on an $8.5 million annual renewable line of credit provided by M&T Bank, of which $8.3 million was outstanding as of June 30, 2017. Monday’s downgrade puts Sage down nine notches since it was slashed to Baa2 from Baa1 in December 2002.

“The negative outlook reflects our expectations that the college's operations will remain materially challenged for the foreseeable future,” said Sharma. “A highly competitive market environment with limited resources constraining the college's strategic position limits the college's ability to affect an enrollment turnaround. “

Sage is comprised of three units: Sage College of Albany, Russell Sage College in Troy and the Sage Graduate School. Total full-time enrollment dropped 13% to 2,125 in 2017 from 2,407 in 2013 with operating revenue down 5.3% in that span. The school had $24.9 million in total debt outstanding last year, according to Moody’s.

"This downgrade is not a setback for The Sage Colleges, but rather a delayed reflection of the financial difficulties that the institution faced in 2017 and to which we are actively responding,” Sage spokeswoman Heidi Weber said in a statement. “We continue to take positive steps to streamline and contain our costs, while enhancing our revenue.”

Weber said Sage is seven months into a new admissions strategy that has generated to date a 37% increase in applications with a 25% jump in the fall’s undergraduate and graduate entering classes projected. Weber said expense reductions this year would set Sage up growth starting in the 2019 fiscal year. She added that new programs in popular fields such as sports management, information technology and cybersecurity along with new men’s lacrosse and field hockey athletic programs are geared toward attracting new students.

“The Northeast is a highly competitive environment,” said Weber. “Sage’s challenges reflect those of the market, but the recent tactical and strategic changes are better positioning Sage for growth."

Sharma noted that recovery prospects in the event of default for series 1999A and 2002A bonds issued through the Albany Industrial Development Agency and Rensselaer County IDA, respectively are “uncertain” because they would be dependent upon the sale of campus property. The 1999A rated bonds are fixed rate and payable through 2029. The Series 2002A Bonds are variable rate demand obligations supported by a letter of credit with M&T Bank that has a stated expiration of June 30, 2018, according to Moody’s.

“Sage College’s strategic position is very weak due to intense competition for students, constrained pricing power, and limited ability to invest in campus facilities,” said Sharma. “The school is employing strategies to stabilize its enrollment, including reinstating early acceptance, increasing merit scholarships, and sending admission packages two months earlier than the prior year.”

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