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Rating Action:

Moody's downgrades William Paterson University (NJ) to A3; outlook stable

09 Apr 2020

New York, April 09, 2020 -- Moody's Investors Service has downgraded the rating on William Paterson University of New Jersey, NJ (WPU) revenue bonds to A3 from A2. The outlook has been revised to stable from negative. This action affects $175 million of debt.

RATINGS RATIONALE

The downgrade to A3 is driven by a combination of weak enrollment trends, deteriorating operating performance, and reduced liquidity. A nearly 9% enrollment decline over the past five years has weighed on operating performance. The university's debt service coverage declined to 0.8 times, well below the A2 median of 1.9 times. Total cash and investments have declined over 20% in the past five years, with a 25% drop in monthly liquidity, due to weak operating performance combined with use of reserves for various strategic capital initiatives. WPU's challenges stem in part from declining transfer students, which make up over one third of incoming students in fall 2019, and low retention of existing students.

The A3 rating remains supported by WPU's role as a mid-sized regional public university, with still adequate reserves and good state support in recent years. Favorably, new freshman matriculation has increased two years in a row, signaling that enrollment could be stabilizing.

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.

We regard the outbreak as a social risk under our ESG framework. The impact from the coronavirus is not a primary driver of the downgrade. However, the university's flexibility to respond to the disruption is weakened by already thin operating cash flow and declining liquidity. A recent federal aid program, the CARES Act, will provide some relief for WPU. Favorably, the university is equipped to offer online classes and revenue declines will be moderate in fiscal 2020. However, the pandemic could further add to enrollment pressures if it weakens student enrollment and retention in fall 2020. WPU's revenues are also dependent on state appropriations, which accounted for over 36% of fiscal 2019 revenue and will likely fall as the state grapples with its own negative budgetary impact from the virus. The state has already frozen some appropriations to the university for fiscal 2020, an estimated $5 million impact.

RATING OUTLOOK

The stable outlook reflects some prospects that enrollment will stabilize and wealth and liquidity will remain at levels consistent with the rating even as the university navigates a challenging operating environment.

The outlook incorporates Moody's base case macroeconomic scenario, which includes a sharp contraction in growth in calendar 2020 followed by a rebound in calendar 2021. However, given the tremendous uncertainty, there is a range of plausible outcomes. The risks to our baseline forecasts remain firmly to the downside. For higher education, our current base case is that on campus classes will resume in the fall of 2020, and that multiple revenue streams will come under pressure in fiscal 2021, with some balance sheet deterioration due to investment losses. Inability to resume in person, on campus classes this fall would add additional credit strains.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

-Material improvement in market position reflected in stronger enrollment patterns

-Much stronger, sustained debt service coverage

-Rebound in total cash and investments

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

-More significant operational and financial disruption due to the coronavirus outbreak

-Material decline in appropriations from the State of New Jersey, especially in light of low debt service coverage, or credit deterioration of the state

-Further weakening of liquidity, particularly if operating performance remains strained

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.

PROFILE

William Paterson University is a regional public university located in Wayne, New Jersey. The university is primarily an undergraduate university, but also offers graduate and doctoral degrees through its five academic colleges. The university has over 7,800 full-time equivalent students and generates $220 million of operating revenue.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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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