What Moody’s says about Howard U.

June 11, 2013

The chairman of the board of trustees says Howard University is in strong shape. The vice chairwoman of the board suggests the university is in jeopardy of closure within three years without a swift and major course correction.

Who’s right?

Neither Addison Barry Rand, the chairman, nor Renee Higginbotham-Brooks, the vice chairwoman, has granted interviews since Howard began making headlines in the last few days. They are letting letters (his and hers) speak for them.

But an independent third party has issued an opinion: the bond credit ratings firm Moody’s.

In March 2011, Moody’s gave Howard an A3 rating, with a negative outlook, as two bond issues were in the works for the university valued at a total of about $285 million.

Translation of the financial lingo: Moody’s essentially was advising investors that the historically black private university in Northwest Washington was a low credit risk, and that its bonds were rated at an upper medium grade. A3 is seventh on the Moody’s list of 21 ratings.

But it’s still in the A range, which is where universities want to be.

“Negative outlook,” a Moody’s spokesman said, means that there is downward pressure on the rating, providing a higher chance of a downgrade.

“Howard University benefits from a reputation as the best among Historically Black Colleges and Universities in the country,” Moody’s wrote.

Among its strengths, the analysts said:

— “New management that has developed a plan to reduce expenses by streamlining the university’s educational offerings; expand the university’s relevance in Science, Technology, Engineering and Mathematics; and update facilities and technology to attract funding, faculty and students.

— “Consistent support from the federal government which has averaged approximately $230 million annually for the last five years.”

And its challenges, according to Moody’s:

“Narrow operating margin with increased pressure from pension and debt obligations expected in coming years.

“Significant leverage that will equate to almost $37,000 per student after the proposed issuance and increased operating lines of credit, together with an ambitious facilities plan.

“Dependence on the federal government for 27 percent of operating revenue with related exposure to budget delays and potential for reduction in support given fiscal pressures.

“Exposure to the financial pressures of providing health care through operation of the Howard University Hospital.”

On Tuesday, asked about the 2011 rating, Howard officials had no immediate comment.

On the university’s Web site, there is another analysis from the credit rating firm Standard & Poor’s.

Dated Aug. 20, 2012, this analysis rated Howard’s bonds at an A-minus level, which means “strong capacity to meet financial commitments but somewhat susceptible to adverse economic conditions and change in circumstance.”

Again, it worth noting that the A range is where universities want to be in such ratings. But the S&P report also downgraded the credit outlook for Howard to negative from positive.

“We revised the outlook because Howard’s 2012 budget results were well below their expectations,” S&P wrote.

S&P added: “In our view, key drivers of Howard’s rating during the next few years will be management’s success in growing operating margins, restoring a healthy liquidity position with only periodic reliance on lines of credit, resolving strategic issues related to the hospital, and implementing an extensive long-term facilities plan.”

The firm, in assessing Howard’s strengths, echoed much of the Moody’s analysis and stressed the “unique niche” Howard occupies in higher education.

It seems clear from the Moody’s and S&P reports that hospital revenue and federal appropriations have been central in discussions of Howard’s fiscal situation for some years.

Howard President Sidney A. Ribeau, in office since 2008, said in an April speech that the university in the first part of fiscal 2013 (which ends on June 30) had lower-than-expected hospital revenue and that it was expecting a federal budget cut due to the sequester. In addition, the university faced a tuition revenue drop as student enrollment fell from 10,583 in fall 2011 to 10,002 in fall 2012.

Ribeau and Rand, in their public remarks, have expressed repeated optimism that a school one college analyst calls the “flagship university of black America” will prosper in coming years. Higginbotham-Brooks, in her letter, indicated that she was not so sure.

A former Post education editor, Nick writes about college from the perspective of a father of three who will soon be buried in tuition bills.
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