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Rating Action:

Moody's downgrades New Jersey City University (NJ) to Baa3 and assigns Baa3 to Series 2020; outlook negative

29 Apr 2020

New York, April 29, 2020 -- Moody's Investors Service has downgraded the rating on New Jersey City University, NJ's (NJCU) outstanding bonds to Baa3 from Baa1 and assigned a Baa3 to NJCU's proposed approximately $52 million Revenue Refunding Bonds, New Jersey City University Issue, Series 2020 B (Tax-Exempt) and Series 2020 C (Federally Taxable). The bonds are to be issued through the New Jersey Educational Facilities Authority. The bonds have an expected final maturity in 2045 and will refund the Series 2007F, Series 2008F, Series 2010F, Series 2010G and 2015A bonds. The action affects approximately $141 million of outstanding debt. The outlook remains negative.

RATINGS RATIONALE

The downgrade to Baa3 and maintenance of the negative outlook reflect NJCU's ongoing operating deficits that continue to weaken liquidity. NJCU's operating deficits have escalated each of the past five years as it has invested in programs and capital, with a nearly 10% deficit in fiscal 2019, and inability to cover debt service from operations for the past four years. Monthly liquidity fell to under $14 million in fiscal 2019, compared to $45 million in fiscal 2015. This recent aggressive financial strategy, which is a component of governance and management under Moody's ESG taxonomy, has constrained the university's ability to adjust to what is likely to be challenging business conditions over the next several years.

The Baa3 rating remains supported by NJCU's role as a regional public university with continued opportunities to leverage its favorable Jersey City location for broader public and private investment. The university's recent sizable investments in campus infrastructure highlight its focus on capital spending and facility maintenance, and provide prospects to improve its market profile over time. The current refunding will lower debt service over the next two years, providing some budgetary relief as the university addresses its fundamental fiscal difficulties. Favorably, the university is equipped to offer online classes and will receive $8.6 million from the CARES act, a recent federal aid program. As a result, management projects stable liquidity for fiscal 2020.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and financial market declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented and will likely have multi-year implications for the NJCU. We regard the outbreak as a social risk under our ESG framework. The pandemic could further add to enrollment pressures if it weakens student enrollment and retention in fall 2020. The university operates in a highly competitive environment serving an enrollment base comprised of many first-generation students leading to high price sensitivity that limits tuition flexibility. Further, the university will face likely declines in appropriations in fiscal 2021 from the State of New Jersey (A3 negative) as the state grapples with its budgetary impact from the coronavirus. The state has already frozen a portion of this year's funding, a $5 million impact to the university.

RATING OUTLOOK

The negative outlook reflects the challenging business conditions which will make it difficult for the university to restore fiscal balance and improve liquidity over the next several years absent a material change in financial strategy.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

--Material strengthening of operating performance with significant increase in liquidity

--Strengthened strategic position reflected in stronger enrollment patterns and revenue growth

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

--Inability to maintain stable liquidity in fiscal 2020 or continued declines in monthly liquidity in fiscal year 2021 without prospects for reversal

--Ongoing operating deficits and inability to cover debt service from operations

--Weakening in state support that is not offset by other sources of revenue

LEGAL SECURITY

All bonds are unsecured general obligations of the university payable from any legally available funds of the university. There is no debt service reserve fund.

USE OF PROCEEDS

The proceeds from the Series 2020 bonds will be used to refund the Series 2007F, Series 2008F, Series 2010F, Series 2010G and 2015A bonds.

PROFILE

New Jersey City University is a four-year, undergraduate and graduate public university with several sites in Jersey City, NJ in close proximity to New York City. The university had an enrolled headcount of nearly 8,000 students for fall 2019 and averaged 6,763 FTEs over the last five years, with over 80% at the undergraduate level.

METHODOLOGY

The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Craig Sabatini
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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