New York, October 13, 2020 -- Moody's Investors Service has affirmed the A1 rating on George Washington University's (DC) taxable revenue bonds. The affirmation applies to $1.87 billion of outstanding bonds with a final maturity in 2048. The outlook is stable.
RATINGS RATIONALE
Affirmation of George Washington University's A1 reflects our expectation that the university will continue to take steps to adjust to revenue disruptions in fiscal 2021, generating break even operations and returning to stronger performance in fiscal 2022 while maintaining good liquidity.
The A1 rating remains supported by the university's sizable scale, with $1.7 billion in operating revenue in fiscal 2020 and strong overall wealth, with over $3 billion in cash and investment. The university's strategic positioning is very good. A comprehensive array of programs at both the undergraduate and graduate level, and still attractive urban location, favorably support long term demand prospects. However, the university also has direct exposure to patient care revenue through its faculty practice plan, with a restructured relationship in fiscal 2019 that resulted in consolidation of the plan with the university, and indirectly through its relationship with Universal Health Services, Inc. (Ba1 stable). Offsetting factors include high financial leverage with spendable cash and investments to total debt of 1.2 times and a large investment concentration in directly held commercial real estate, geographically concentrated near the campus.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. For the fall 2020 semester, campus access is largely restricted, as the university adopts primarily an online curriculum. Management currently forecasts that enrollment will be down over 5% compared to the prior fall semester.
RATING OUTLOOK
The stable outlook reflects our expectations that management will continue to take prudent and aggressive actions to adjust to near term operational and financial challenges posed by the coronavirus pandemic and position the university towards long term fiscal sustainability. Based on outlined plans for adjustment, GWU should revert to historical performance after the disruption caused in fiscal 2021, with operational cash flow margins of above 10% and over 200 monthly days cash on hand.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
-Substantial increase in operating reserves
-Sustained improvement in cash flow from operations, which would partially mitigate high debt levels
-Further strengthening of long term strategic position, reflected in ability to successfully implement its strategic plan while also improving the position of its academic medical center
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
-Softening of student demand or operating performance with cash flow margins below 10%
-Increase in financial leverage given already high debt levels
-Marked reduction in unrestricted liquidity
-Material decline in market value of real estate assets
LEGAL SECURITY
The bonds are an unsecured general obligation of the university.
PROFILE
George Washington University is a large, comprehensive, urban university that continues to leverage its location in the nation's capital to draw a healthy mix of undergraduate and graduate students. Total operating revenue was $1.7 billion in fiscal 2020. Total full-time equivalent enrollment is estimated to be over 22,000 students in fall 2020.
METHODOLOGY
The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.
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Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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Roy Eappen
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
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Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
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