London, 15 May 2012 -- Moody's Investors Service has today assigned an Aa1 issuer rating to De
Montfort University. The outlook on the rating is negative.
RATINGS RATIONALE
Today's rating assignment reflects De Montfort University's
(DMU) good market position in Health and Life Sciences and distinction
as a national leader in the Creative Arts, the various measures
it is taking to maintain and improve this position and its improving financial
performance. However, the rating is constrained by DMU's
planned increase in long-term debt and the relatively short track
record of its improved governance.
The rating also incorporates Moody's assessment of a strong regulatory
framework for English universities and of a very high likelihood of extraordinary
support from the UK government (Aaa, negative) in the unlikely event
of DMU experiencing acute liquidity stress.
Moody's notes that DMU has been successful in increasing enrolment
from UK/EU students and international students, both in undergraduate
as well as postgraduate courses. The university has established
various partnerships with business, international universities and
the community which should support further growth in student numbers.
The planned increase in debt which will bring its debt-to-revenue
ratio to a high 70%, will enable DMU to carry out investments
in its estates and educational infrastructure which is central to its
longer term strategy to enhance its competitive position. This
includes the completion of a new leisure centre, the transformation
of a main road dividing the campus into a plaza and a joint project with
Hewlett Packard which seeks to make DMU a sector leader for IT infrastructure.
DMU's financial track record is good, having generated small
surpluses or balanced budgets in the past. However, it recorded
a deficit of 2.3% in FY 2010 due to over-recruitment
of government-limited UK/EU undergraduate students which resulted
in a reduction of government grants and additional expenses. DMU
has since revised internal processes and procedures for the monitoring
of financial performance and student recruitment. Given the scope
of these changes, implementation challenges over the short term
cannot be excluded.
The negative outlook mirrors the outlook on the UK's Aaa sovereign
ratings, given the strong linkages between DMU and the UK government
in terms of funding, controls and intervention powers.
WHAT COULD CHANGE THE RATING -- UP / DOWN
Although not expected in the medium-term, a significant reduction
against planned relative debt levels combined with sustained operating
surpluses could positively impact the rating. In addition,
the uncertainties of funding changes in the government's reforms of UK/EU
student fees and student number controls, whilst likely manageable,
make it unlikely that De Montfort's rating would improve in the
near term.
Deteriorating operating performance due to missteps in cost adjustments
and/or an inability to manage in the face of new dynamics in funding and
student demand could negatively impact the rating. Whilst unlikely,
weakening support for higher education in government policy as well as
a reduction in the oversight exercised by HEFCE would hurt the sector's
credit profile, including that of the University.
PRINCIPAL METHODOLOGIES
The methodologies used in this rating were Methodology for Rating Public
Universities published in August 2009, and Government-Related
Issuers: Methodology Update published in July 2010. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
REGULATORY DISCLOSURES
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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
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Sarah Kieling
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
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United Kingdom
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David Rubinoff
MD - Sub-Sovereigns
Financial Institutions Group
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Releasing Office:
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Moody's assigns Aa1 issuer rating to De Montfort University; outlook negative