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Rating Action:

MOODY'S DOWNGRADES WELLESLEY COLLEGE'S (MA) LONG-TERM RATING TO Aa1 FROM Aaa AND ASSIGNS Aa1 RATING TO $150 MILLION OF SERIES J TAX-EXEMPT AND SERIES K TAXABLE REVENUE BONDS; OUTLOOK IS REVISED TO STABLE FROM NEGATIVE

Global Credit Research - 19 Mar 2012

RATING ACTION IMPACTS $238.6 MILLION OF RATED DEBT OUTSTANDING INCLUDING THE CURRENT ISSUE

New York, March 19, 2012 -- Moody's Rating

Issue: Revenue Bonds, Wellesley College Issue, Series J 2012; Rating: Aa1; Sale Amount: $55,000,000; Expected Sale Date: 03/28/2012; Rating Description: Revenue: 501c3 Unsecured General Obligation

Issue: Wellesley College Taxable Bonds, Series K 2012; Rating Aa1; Sale Amount: $95,000,000; Expected Sale Date: 03/28/2012; Rating Description: Revenue: 501c3 Unsecured General Obligation

Opinion

Moody's Investors Service has downgraded Wellesley College's outstanding bond ratings to Aa1 and Aa1/ VMIG 1 from Aaa and Aaa/VMIG 1 and assigned Aa1 ratings to Wellesley's (Wellesley or the college) $55 million of fixed-rate Series J revenue bonds issued through the Massachusetts Finance Development Agency and $95 million of fixed-rate Series K taxable revenue bonds. The rating action reflects a significant increase in operating leverage with this new debt issuance combined with the stagnant to negative trends of the college's core revenue streams -- net tuition revenue and endowment draw which has contributed to imbalanced operations by Moody's calculation. The outlook has been revised to stable from negative, at the lower rating level.

SUMMARY RATING RATIONALE:

Wellesley's Aa1 rating reflects the college's superior student market position with strong student demand, robust fundraising, and large financial resource base providing significant support for debt and operations. Offsetting these factors are the college's imbalanced operating performance (by Moody's calculation) with limited operating cash flow providing relatively thin debt service coverage, stagnant net tuition revenue and a plan for extensive campus renovation partly funded with this debt issuance. The Aa1/VMIG1 on the college's variable rate demand bonds reflects the strength of the college's self liquidity program.

CHALLENGES

*Negative pressure on core revenue streams, including flat net tuition revenue and a reduced endowment draw, with a 6% decline in total operating revenues from FY 2008 to FY 2011;

*Substantial new debt issuance increases Wellesley's operating leverage significantly with FY2011 pro-forma debt to operating revenue of 1.46 times;

*Very weak annual operating cash flow by Moody's calculation (-2.0% three-year average deficit and 5.8% operating cash flow margin) relative to Aaa-rated peers, which will require the college to sustain strong giving and investment returns to support long-term growth in financial resources and capital investment.

STRENGTHS

*Excellent student market position as a highly selective liberal arts women's college with 2,266 full-time equivalent (FTE) undergraduate students in fall 2011 with strong student demand;

*Substantial financial resources providing very strong cushion of debt and operations;

*History of strong fundraising, with average annual gift revenue from FY 2009 through 2011 of $39 million and average gifts per student of $17,328 in FY 2011.

Outlook

The stable outlook reflects our expectation that Wellesley will maintain its superior market position as the premier women's college in the United States with outstanding philanthropic support to grow the balance sheet to offset tuition discounting and new debt.

WHAT COULD MAKE THE RATING GO UP

Significant strengthening of operating cash flow coupled with growth of financial resources to better support heightened debt

WHAT COULD MAKE THE RATING GO DOWN

Long-term and sustained deterioration of student market position; significant increase in balance sheet leverage due to investment losses and/or substantial additional borrowing; erosion of financial resources or significant decline in liquidity

METHODOLOGY

The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Eva Bogaty
Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Kimberly S. Tuby
Vice President - Senior Analyst
Public Finance Group

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S DOWNGRADES WELLESLEY COLLEGE'S (MA) LONG-TERM RATING TO Aa1 FROM Aaa AND ASSIGNS Aa1 RATING TO $150 MILLION OF SERIES J TAX-EXEMPT AND SERIES K TAXABLE REVENUE BONDS; OUTLOOK IS REVISED TO STABLE FROM NEGATIVE
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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