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Global Credit Research - 15 Dec 2011
New York, December 15, 2011 -- U.S. research universities have sufficient credit strength
to maintain high ratings despite a weaker funding outlook, including
looming cuts in federal government funding, says Moody's Investors
Service in a new report.
"Except for the temporary boost provided by the 2009 stimulus,
federal research funding has been largely stagnant in recent years,
a trend likely to worsen for the foreseeable future," said
Moody's Vice President-Senior Credit Officer Edie Behr,
a co-author of the report. "Federal funds account
for approximately 60% of research grants awarded to universities,
but that share will likely drop as private funding grows."
There are more than 100 research universities and university systems in
the US that borrow in capital markets and are rated by Moody's.
The group includes stand-alone private institutions well known
for research such as Johns Hopkins University, Massachusetts Institute
for Technology, and Stanford University. But the group also
includes large multi-campus public university systems, including
the University of California and the University of Texas System.
In addition to federal funding cuts, Moody's reports that
research universities confront other emerging challenges that will lead
to subdued financial performance compared to the boom conditions of the
past two decades.
"All university business lines are likely to generate less-robust
revenue growth over the next decade," said Behr. "The
weaker growth outlook applies to revenues from research grants,
endowment returns, fundraising, student tuition, and
patient care for universities that operate hospitals."
Research universities have rarely been downgraded in the past and have
sufficient credit strength to maintain high ratings despite a weaker funding
outlook, according to Moody's.
"Compared to other colleges and universities, research universities
recruit more top faculty and students, operate on a larger scale,
attract more private funding, and have more capacity to cut costs,"
said Moody's Managing Director, John Nelson, co-author
of the report.
"Future downgrades are expected to remain comparatively few,
especially for the largest, wealthiest, and most reputable
universities," said Nelson. "However, improved
management and governance practices will become more critical at all research
universities, and smaller research universities that lack the diversified
strengths of their larger, more-established peers will face
higher credit risk."
The Moody's report points out that top research institutions enjoy
global reputations for leadership and play an increasingly important role
in the U.S. and global economies. In many cases,
they are the largest employers in their local metropolitan regions,
and sometimes even in an entire state. They are important sources
of scientific advancements that spur new industries.
The report, "U.S. Research Universities Face
Looming Federal Funding Cuts, but Remain Well Positioned to Withstand
Credit Challenges," is available at moodys.com.
* * * * *
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: New York +1-212-553-0376,
London +44-20-7772-5456, Tokyo +813-5408
4110, Hong Kong +852-3758-1350, Sydney
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São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506.
John C. Nelson
MD - Public Finance
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
VP - Senior Credit Officer
Public Finance Group
Moody's: U.S. research universities can cope with federal funding cuts
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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