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Rating Action:

Moody's affirms Loyola University, LA's Baa1; outlook negative

08 Mar 2019

New York, March 08, 2019 -- Moody's Investors Service has affirmed Loyola University's (LA) Baa1 rating on $166 million of outstanding rating debt. The revenue bonds have been issued through the Louisiana Public Facilities Authority. The rating outlook remains negative.

RATINGS RATIONALE

Loyola University's good credit quality is supported by its solid financial cushion to expenses and healthy liquidity relative to peers, with 392 monthly days cash on hand relative to a peer median of 256 days. Loyola's current management team has taken steps to accelerate plans to reach balanced operations in the fiscal 2019 to 2020 timeframe. However, the pressured student market poses significant execution risk to achieving enrollment goals and delivering year-on-year revenue growth. Achievement of balanced operations without elevated endowment draws as well as ongoing revenue growth to meet rising debt service are key to maintaining credit quality, particularly in light of the university's high debt relative to its operating base. Operating deficits depleted financial reserves by almost 20% from fiscal 2014 to fiscal 2018. However, strong gift support helped offset weak fiscal 2018 operating performance, halting further deterioration of reserves.

While enrollment improved demonstrably in fall 2018, undergraduate selectivity and matriculation weakened with a high tuition discount rate relative to peers, reflecting ongoing competitive student market pressures. Softened student demand has contributed to multiple years of revenue declines and weak operating cash flow insufficient to cover debt service. Based on management guidance, fiscal 2019 cash flow from operations will provide close to 1x debt service coverage without elevated endowment draws. Inability to continue improvements to operating performance given increasing debt service commitments and the need for ongoing program and capital investments to remain competitive could negatively impact credit quality.

RATING OUTLOOK

The negative outlook reflects the potential for continued imbalanced operating performance, resulting in further deterioration of financial reserves. It also incorporates the potential for sustained student demand challenges especially in light of weakened discount, selectivity, or matriculation rates.

A revision of the outlook to stable at the current rating level could result from materially improved operating performance for fiscal 2019 and 2020 combined with net tuition revenue growth and stable to improving selectivity and yield on admitted students.

FACTORS THAT COULD LEAD TO AN UPGRADE

- Significant and sustained improvement in operating performance including healthy debt service coverage

- Outsized financial resource growth relative to peers

- Multiple years of stable enrollment and net tuition revenue growth

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Inability to sustain healthy revenue growth in order to meet increasing debt service

- Failure to achieve material improvement in operating performance in fiscal 2019 and balanced operations by fiscal 2020, with near 1x debt service coverage

- Decline in unrestricted liquidity or further erosion of financial reserves

- Material enrollment declines

LEGAL SECURITY

Rated debt is an unsecured general obligation of the university.

PROFILE

Loyola University is a private, Jesuit university located in New Orleans, Louisiana. The university enrolled approximately 3,900 students in fall 2018 and generated operating revenue of $98 million in fiscal 2018.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Susan Shaffer
Lead Analyst
Higher Education
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Susan Fitzgerald
Additional Contact
Higher Education
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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