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Rating Action:

Moody's downgrades Bard College (NY) to Ba1 from Baa1; outlook negative

Global Credit Research - 19 Dec 2013

$135M rated debt

New York, December 19, 2013 -- Moody's Investors Service has downgraded Bard College's rating to Ba1 from Baa1 and revised the outlook to negative. This concludes the review of the college's rating that began on September 11, 2013. The downgrade is driven by the college's exceedingly thin liquidity with full draw on operating lines of credit, material decline in cash and investments outside of sizeable investments held in trust, weakening cash flow, and elevated risks associated with its operating model given the expansion of the expense base. The negative outlook considers the possibility that the college's liquidity will not materially improve, that it could breach loan covenants, and that the reliance on lines of credit to finance operations and capital needs in advance of the receipt of pledge payments will grow.

SUMMARY RATING RATIONALE

The downgrade to Ba1 reflects razor thin liquidity and weakening cash flow from operations combined with an entrepreneurial operating model that continues to grow the college's expense base and exposure to philanthropy. Bard's continued reliance on operating lines of credit to support operations underscores the college's growing dependence on cash gifts and pledges to fund its expanding operations, a willingness to fund operations and projects prior to payment on pledges, and the uncertainty of the timing of the receipt of pledge payments. The Ba1 rating also factors the college's high leverage and ongoing capital needs and incorporates limited documentation and transparency of policies, practices, and long-term planning. Superior but concentrated donor support that is a crucial part of ongoing operations, a strong market position with an increasingly global brand, and recent actions that could bolster sources of liquidity support the rating at the Ba1 level.

The negative outlook reflects the heightened financial vulnerability of the college while liquidity remains so thin. It also reflects its vulnerability to disruption in donor support each year, with gifts providing over 40% of annual operating revenues. The college's success in achieving current plans to grow quasi-endowment in tandem with reduced draws on operating lines would be considered credit positive.

CHALLENGES

• Bard operates with extremely thin liquidity and heavy reliance on operating lines of credit to bridge the receipt of pledges, making it vulnerable to lack of market access. At June 30, 2013, monthly liquidity of $7.1 million reflected a very low 3.9% of total cash and investments, equal to 14 days of operations. As of the same date draws on lines of credit totaled $15.6 million (increased to $17.6 million as of October 31, 2013), and without those draws, liquidity would have been negative.

• The college is highly leveraged with $185 million of debt, equivalent to annual operating revenues. This debt includes various lines of credit subject to annual renewal.

• Operating performance has weakened, and the college's limited annual operating cash flow in 2013 was insufficient to fully cover debt service requirements.

• The college's significant reliance on gifts to support annual operations (42% of operating revenues in FY 2013) makes it especially vulnerable to donor preferences and market conditions.

• Investments, excluding the Bard Endowment Trust (BET) held at the Iris Foundation, are highly concentrated with nearly 70% with three managers (each over 20%).

• Weak documentation and transparency including investment and liquidity policies, long-term plans, and ability to access alternate sources of liquidity could make it difficult to carry out operational and governance decisions.

• The lack of succession planning for the long-standing President and CFO could pose operational challenges upon retirement or departure of either given the President's ascribed association with the college and ability to garner board and donor support, and the decentralized management structure of Bard's various schools and programs in the U.S. and overseas.

STRENGTHS

• Bard maintains a strong student market position among nationally selective liberal arts college, with total enrollment projected to increase. In fall 2013, the college accepted 35% of applicants, of which 24% enrolled, and net tuition per student ($25,284 in FY 2013) continues to grow.

• The college has diverse locations and programs for high school, undergraduate and graduate students. The recent merger with the Longy School of Music in 2012 enhances Bard's programmatic niche in fine arts and the acquisition of a liberal arts college in Berlin, Bard College Berlin, in 2011 expands its brand internationally.

• Fundraising has been unusually strong at the college relative to its size, with gift revenue averaging $71.9 million from FY 2011-2013. The college has, to date, successfully relied on significant and concentrated donor support for annual operations.

• Bard has an agreement with the Iris Foundation to borrow against the BET held by the foundation on behalf of the college. This is an additional, but untested, potential source of liquidity.

Outlook:

The negative outlook reflects the possibility that liquidity will remain thin, operations will continue to rely significantly on donor support each year, without which financial resources remain stagnant or decline. The college's success in achieving current plans to grow quasi-endowment in tandem with reduced draws on operating lines would be considered credit positive and mitigate current challenges to liquidity.

WHAT COULD MAKE THE RATING GO DOWN

A downgrade could result if there is: no material and sustained improvement in the college's liquidity, including progress towards its plan to grow quasi-endowment; continued need to draw significantly on operating lines of credit during the year to support operations in advance of the receipt of donor pledges; a sustained reduction in gifts; further narrowing of headroom against loan covenants or covenant breaches; further weakening of annual operating performance; disruption in market access; or increased leverage.

WHAT COULD MAKE THE RATING GO UP

A change of the outlook to stable could result from a material and sustained increase in liquidity and significant reduction of the college's reliance on operating lines of credit in advance of the receipt of pledges. A rating upgrade is unlikely over the near-term, but could result from a material reduction in the reliance on donor gifts to support current year operations, stronger liquidity with a greater proportion of endowment unrestricted, improved documentation and transparency around policies and practices to guide.

PRINCIPAL METHODOLOGY USED

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

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 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 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.

Jenny L. Maloney
Vice President - Senior 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

Susan I Fitzgerald
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 Bard College (NY) to Ba1 from Baa1; outlook negative
No Related Data.
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