Moody’s Investor Service downgraded the university’s credit rating from a double A rating to a single A rating this week. This rating is used to inform investors on the open market of the risk involved with loaning funds, through the purchase of bonds, to the university.
The drop in rating marks a move from an institution of high credit quality to one of upper-medium grade quality, according to Moody. It also downgraded the risk investors would incur from lending to the university from “very low” to “low.”
The difference in ratings will cost the university about $45,000 a year more in interest, Executive Vice President and Chief Financial Officer Jeff Apfel explained in an e-mail to The Hoot. However, with a university budget of over $300 million, Apfel said this change doesn’t cause significant financial stress.
Ratings are based on student quality, a school’s reputation and the schools underlying financial situation. While Brandeis’ overall financial resources may be more comparable to the schools previous rating of double A, its unrestricted funds are far less.
“For the most part, the single A is a way of saying ‘we see you have a great reputation, admit excellent students and have a great program, but since we are in the business of advising bondholders about worst-case non-repayment situations, you don’t have exactly the same cushion as your usual double-A,” Apfel wrote. “Your cushion is a lot more like single-A places.”
“The rating action reflects our concerns about the university’s reduced levels of unrestricted and expendable resources in light of investment losses and history of operating losses, as well as recent pressure on student demand,” Moody’s said in a statement on their Web site.
“Although we believe that the university is taking steps to bring operations into balance, we believe these revenue-generating and expense containment measures will take time to be fully realized,” the statement said.
Wednesday, the university priced approximately $180 million worth of bonds, this pricing locked in a low 4.75 interest rate on these bonds for the next 30 years, and this is an excellent deal, wrote Apfel. The downgrade in rating does not affect previous bonds.
Currently the university has a balanced budget and is projecting the same for next year. Through the implementation of proposals made by last year’s Curriculum and Academic Restructuring Steering Committee and they assumption that this years Brandeis 2020 Committee proposals will be effective, the university has dealt with a situation that a lot of other schools are just beginning to face, Apfel explained. Dartmouth along with several other comparable universities are projecting growing deficits while Brandeis’ projects theirs shrinking, said Apfel. The endowment was $619.6 million as of Jan. 31.
