Moody’s downgrades Howard University’s credit rating

Moody’s Investors Service downgraded Howard University’s credit rating Tuesday, citing a loss of patient revenue and volume at its hospital, cuts in federal funding and other challenges facing the historically black university.

The downgrade to a rating of Baa1 means that Moody’s considers $290 million in revenue bonds issued for the private university in Northwest Washington to be a moderate credit risk to investors. Previously, the rating had been A3, indicating a low credit risk. Moody’s also warned that its rating comes with a negative outlook, meaning another downgrade is possible.

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Rating downgrades are not uncommon. Colleges and universities across the country have faced challenges recently because of stagnant enrollment, weak growth in tuition revenue, price sensitivity among consumers and limits on public funding.

Moody’s downgraded St. Mary’s College of Maryland to a rating of A2 on Sept. 9, after a sudden enrollment shortfall last spring that contributed to the departure of the public college’s president. Moody’s also downgraded historically black Morehouse College in May to a rating of Baa1, saying that the private institution in Atlanta faced enrollment challenges.

Howard President Sidney A. Ribeau said in a statement that his university has put in motion “a robust strategy to mitigate soft enrollment,” boost operational efficiency and make long-term structural ­changes at the university and the hospital.

“We have made significant progress with four consecutive years of positive operating results and increased our endowment above pre-recession levels,” Ribeau said.

Moody’s initiated the ratings review in July after the public disclosure of tensions within the school’s board of trustees over its fiscal condition and leadership under Ribeau, who has led Howard since 2008.

The board’s vice chairwoman, Renee Higginbotham-Brooks, wrote in a letter made public in June that the school is “in genuine trouble.” But Board Chairman Addison Barry Rand replied in a statement that the school “remains academically, financially and operationally strong.”

The Moody’s report speculated about possible leadership transitions. It noted that the university is searching for a new chief financial officer. In addition, the report said, Rand and Ribeau “are approaching the end of their commitments to the university. Any of this transition may prove distracting to the university’s efforts to address its current challenges.” The university had no immediate comment on those assertions.

The report said that Howard has several strengths. Among them are direct annual appropriations from the federal government of more than $200 million, a rare arrangement that stems from the university’s unique history as a bastion of teaching and high-level research in the nation’s capital. “The university has a strong and well-established reputation and is a leading black college in the U.S.,” Moody’s said.

But several challenges weigh on Howard, Moody’s said. The university hospital, which provides safety-net care for low-income D.C. residents, had declining admissions and a shortage of $17 million in revenue in fiscal 2013. Moody’s noted that the university is exploring options for the hospital’s management, including a joint venture or sale.

Enrollment fell sharply in fall 2012 compared with the year before — 6.3 percent as measured in full-time-equivalent students, according to the report — in part because of tighter federal lending criteria for parent loans. Moody’s said that the university projects a partial recovery this fall but that the enrollment squeeze will have a multi­year impact. In addition, the federal budget cuts known as sequestration have hit the university hard.

The report called Howard’s fundraising “weak,” noting that annual donations to the university amount to about $700 per student. Edith Behr, the Moody’s lead analyst on the report, said the average fund­raising total for private universities with a Baa credit rating is more than $1,800 per student.

The report said that the university has an aggressive cost-cutting plan but that there have been delays in implementing it. The management “estimates that the university is behind budget for the first three months of the fiscal year” 2014, the report said. “In the event of additional federal funding reductions, FY 2015 could be even more difficult for the university.”

 
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