Moody’s downgrades Howard U.’s credit rating for second time in the past year

Moody’s Investors Service downgraded Howard University’s credit rating Thursday for the second time in less than a year, citing a “precipitous deterioration” in the financial condition of the university’s teaching hospital.

The university’s new rating of Baa3, down from Baa1, is the lowest investment-grade rating from Moody’s on a scale that runs from Aaa to C. It means that Moody’s analysts consider revenue bonds issued on behalf of the private university in Northwest Washington to be a moderate credit risk for investors.

Until last September, Moody’s had given Howard’s debt an A3 rating, which indicated a low credit risk.

A major problem, Moody’s said, is an estimated $37 million operating loss for the university-owned hospital in the fiscal year that ended June 30, a result of declining patient admissions and other financial strains. Overall, the university operates on revenue of roughly $840 million a year. Patient service at the hospital in recent years has produced about 30 percent of annual revenue.

In addition, the historically black university is in the midst of a leadership transition. Wayne A.I. Frederick is serving as interim president following the abrupt retirement last fall of President Sidney A. Ribeau after months of controversy over allegations of fiscal mismanagement, which Ribeau and his allies denied.

The board of trustees is seeking to name a successor to Ribeau soon, possibly within the next several weeks. Flux at the top could add to challenges, Moody’s said, as Howard seeks a new operating plan for the hospital that could involve a joint venture with an outside partner.

“Without consistency of senior leadership, it is especially difficult to effectively plan and execute the university’s strategies,” Moody’s said in its report on Howard.

While a lower credit rating in theory could increase an institution’s borrowing costs, Frederick said he saw no immediate impact on the university’s finances as a result of the Moody’s action. He said Howard is “making very, very strong progress” on a plan to address problems facing a hospital that is a crucial center of care for many low-income D.C. residents.

“We do feel we will have a solution in the near future,” Frederick said, declining to elaborate.

Aside from the hospital, other aspects of Howard’s financial situation have stabilized. Enrollment, which plunged 5 percent in 2012, partially rebounded in 2013. Last fall, Howard had 10,297 students. The school’s endowment, Frederick said, is nearly $600 million, higher than it has ever been. Howard also receives a direct annual appropriation of more than $200 million from the federal government, a major pillar of support that sets it apart from almost all non-military colleges and universities.

Howard’s new credit rating places it in the lower range of private colleges and universities that Moody’s analyzes. In a listing last year of 282 private institutions it analyzed, Moody’s rated 251 of them higher than Baa3.

Moody’s is not the only firm to downgrade Howard’s credit rating. Standard & Poor’s lowered its rating for Howard’s bonds in March to BBB-plus, from A-minus, citing management turnover and fiscal pressures.

Across the country, many colleges have faced challenges related to high expenses, stagnant enrollment and funding limits. That has led to numerous credit-rating downgrades in recent years. For instance, Moody’s downgraded St. Mary’s College of Maryland in September to a rating of A2, from A1, after a sudden enrollment shortfall in 2013 that contributed to the departure of the public college’s president.

Nick Anderson covers higher education for The Washington Post. He has been a writer and editor at The Post since 2005.
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