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Rating Action:

Moody's downgrades Montclair State University (NJ) to A2; outlook stable

13 Aug 2018

New York, August 13, 2018 -- Moody's Investors Service has downgraded the ratings on Montclair State University's (MSU) approximately $409 million of outstanding revenue bonds to A2 from A1. The bonds were issued through the New Jersey Educational Facilities Authority (NJEFA). The rating outlook is revised to stable from negative.

RATINGS RATIONALE

The downgrade to A2 reflects MSU's thinner operating performance, which is expected to be sustained, and some decline in liquidity as the university continues to fund capital investments. Softening net tuition revenue growth, with a price-sensitive student population, and flat state support from A3-rated New Jersey, combined with rising compensation costs, limit prospects for a return to more robust cash flows. Strong operating cash flows had been a critical credit element given high leverage inclusive of unfunded pension liabilities and high reliance on cash flow for strategic funding initiatives.

The A2 rating favorably incorporates MSU's large $412 million scope of operations and growing presence as the state's second largest public university. Very good strategic positioning acknowledges the university's investment of over $600 million in capital improvements since 2009, with an additional $300 million in public-private partnerships (PPPs) that along with programmatic investments have yielded enrollment gains, improved brand recognition, and updated campus infrastructure. While softening, liquidity and annual financial performance are expected to remain consistent with A2 level credit quality. With historically modest fundraising and lower operating cash flows, we expect limited improvement in overall wealth levels over the next two to three years.

RATING OUTLOOK

The stable outlook reflects our expectation of continuing steady enrollment with cash flow margins to meet 2x debt service coverage. It incorporates our expectation for some use of reserves to finalize capital improvements, no new debt, and a return to reserve growth beginning in fiscal 2020.

FACTORS THAT COULD LEAD TO AN UPGRADE

-Substantial growth in wealth relative to debt and operations

-Further strengthening of brand evidenced by stronger student demand, research growth and sustained heightened philanthropy

-Material and sustained strengthening of operating cash flows

FACTORS THAT COULD LEAD TO A DOWNGRADE

-Further weakening of operating cash flow margins and debt service coverage

-Material use of reserves beyond what is currently anticipated

-Greater than currently anticipated support of the affiliated housing and energy projects

LEGAL SECURITY

Payments under the NJEFA loan agreement are general, unsecured obligations of the university. There are no debt service reserve funds and no pledged mortgages of university assets.

PROFILE

Montclair State University is a comprehensive regional public university, with its main campus location spanning Montclair, Little Falls, and Clifton, New Jersey. MSU was established in 1908 as a normal school and is now the state's second largest university with ten colleges and schools. In fiscal 2017, the university recorded Moody's adjusted operating revenues of $412 million and for fall 2017 enrolled 18,037 full-time equivalent (FTE) students.

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.

Mary Cooney
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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