$123M rated debt affected
New York, August 20, 2013 -- Moody's has downgraded the ratings on Haverford College's long-term
bonds to Aa3 from Aa2 and lowered the ratings on short-term debt
to Aa3/VMIG 1 from Aa2/VMIG 1. All of the bonds were issued by
the Delaware County Authority. The outlook is stable. The
downgrade is driven by a slow recovery in the college's endowment
following significant investment losses in FY 2009 and weakened operating
performance. The stable outlook anticipates growth in expendable
financial resources resulting from favorable investment returns estimated
at 14.1% as of June 30, 2013, expectation of
increased gift flow, and reduced reliance on endowment draws to
support operations.
SUMMARY RATING RATIONALE
Haverford College's Aa3 rating reflects a prominent market position with
strong student demand, proven fundraising ability, healthy
monthly liquidity to support operations and daily liquidity, which,
together with a back-up bank facility, adequately covers
demand debt. Offsetting these factors are weak endowment recovery
and thin expendable financial resources relative to Aa-rated peers,
stagnant net tuition revenue, thinning operating margins,
and a needs blind student aid policy requiring greater reliance on endowment
spending. The stable outlook reflects expectations for increased
gift revenue to strengthen the endowment and provide greater support for
operations as well as management of expense growth and the absence of
large scale debt or capital plans in the near term.
The Aa3/VMIG 1 on the college's 2008 variable rate demand bonds is based,
in large part, on the sufficiency of assets available on a same-day
basis when combined with a committed back-up bank facility with
TD Bank, NA (Aa3/P-1 stable). The college also has
an adequate amount of available funds with weekly liquidity which could
be shifted to investments with same-day liquidity should the bank
facility not be renewed upon expiration or terminated prior to the expiration
date.
CHALLENGES
* The college has been unable to recoup investment losses and rebuild
its endowment relative to similarly sized Aa-rated private colleges
after facing an outsized 35% loss in FY 2009 and weaker returns
in subsequent years relative to peers. The portfolio has been further
diminished by higher than average draws on the endowment to provide financial
aid and to support operations. Despite having lower financial resources
than peers, expendable financial resources provide adequate coverage
of debt and operations at 2.04 times and 2.88 times,
respectively for an Aa3 credit.
* Operating performance has narrowed to a 13.3% operating
cash flow margin in FY 2012 compared to a healthier 20.5%
cash flow margin in FY 2010 with expectations of muted performance in
FY 2013. Average debt service coverage of 2.76 times is
weaker than the 3.40 times FY 2012 median for Moody's Aa-rated
small colleges.
* Net tuition revenue has remained relatively stagnate over the past
five years due to high and increasing discount rates (39.8%
in FY 2012) in part due to the college's need-blind financial
aid strategy. Net tuition revenue, the college's largest
revenue source, was unable to offset declines in endowment draws,
further stressing operating performance.
*Haverford relies on a back-up bank facility to provide adequate
liquidity for $29.7 million of variable rate demand bonds.
Assets of the college available on a daily basis total only $19
million and TD Bank, NA provides $30 million of additional
liquidity.
STRENGTHS
* Haverford maintains its superior market position as a highly selective
liberal arts college located in an affluent suburb west of Philadelphia
with improving selectivity and stable enrollment. In fall 2012,
the freshmen selectivity rate was 22.9% and the matriculation
rate was 38.9%.
* Monthly liquidity, at 722 monthly days cash on hand as of
FYE 2012, exceeds the FY 2012 median for small Aa-rated private
colleges of 501 days providing very strong support for operations.
The college could continue to operate for almost two years if revenue
were to fall to zero and expenses were to continue unabated.
* The board and alumni have a proven history of strong support for
gift campaigns. The college is in the silent phase of a campaign
focused on building the endowment to support scholarships. Gifts
per student averaged $14,493 in FY 2012, well above
Moody's 2012 Aa median for small colleges of $12,308.
* The college has no major debt-funded capital improvement
plans in the short- to mid-term, which should enable
the college to grow the endowment with anticipated increases in gift revenue
and retained earnings.
Outlook
The stable outlook reflects Moody's expectation for increases in
gift revenue to rebuild endowment value. An increased endowment
will enable the college to provide greater revenue support for operations
and offset stagnate tuition revenue and increased expenses.
WHAT COULD CHANGE THE RATING UP
An upgrade is not likely in the near-term given the downgrade.
A positive outlook could result from endowment growth that exceeds similarly
rated peers over a multi-year time horizon, as well as improved
operating performance that reduces reliance on endowment revenue.
WHAT COULD CHANGE THE RATING DOWN
The rating could be lowered if there were a continued material decline
in balance sheet strength versus peers, continued weakness in operating
performance that requires larger endowment draws, or a weakened
market position reflected in significantly weaker student demand.
The principal methodology used in the long term rating was U.S.
Not-for-Profit Private and Public Higher Education published
in August 2011. An addtional methodology used in the short term
rating was Rating Methodology for Municipal Bonds and Commercial Paper
Supported by a Borrower's Self-Liquidity published in January
2012. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
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.
Heidi Wilde
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
Edith F Behr
VP - Senior Credit Officer
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 Haverford College, PA to Aa3 and Aa3/VMIG 1; outlook stable