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Rating Action:

Moody's downgrades Wittenberg University, OH to B1 from Ba2; outlook negative

19 Jun 2013

$36.5M of rated debt affected

New York, June 19, 2013 -- Moody's Investors Service has downgraded Wittenberg University's, OH (Wittenberg or university) rating to B1 from Ba2. The rating action affects $36.5 million of rated debt issued through the Ohio Higher Educational Facility Commission. The rating outlook is negative.

SUMMARY RATING RATIONALE

The downgrade to B1 with a negative outlook is driven by deeply structurally imbalanced operating performance, weakening balance sheet and liquidity, and a fragile market position. The B1 rating also incorporates relatively healthy donor support and commitment from a new management team to balance the operating budget by FY 2017. The negative outlook at the lower rating level reflects stagnant projected operating revenues for FY 2013 and weakened liquidity.

CHALLENGES

* Diminished monthly liquidity declining 27% to $17.8 million from $24.3 million in FY 2011, reflecting a continued spend down of cash to support operations and debt service payments. We expect liquidity to remain thin due to structural operating deficits.

* A recent history of deep operating deficits and negative cash flow. In FY 2012, the three-year average operating margin weakened to a deficit of 11.9% with a negative 1.6% cash flow margin leading to a very weak debt service coverage ratio of negative 0.2 times, as calculated by Moody's. Operating cash flow margins are projected to turn positive in FY 2013, driven primarily by substantial cuts in spending.

*Stagnant enrollment growth and aggressive tuition discounting as a result of stiff competition within the State of Ohio. The freshman discount rate was 54.2% for fall 2012 and is not expected to improve for the incoming fall 2013 class, continuing to hamper net tuition revenue growth and is a particular credit challenge given a high (80%) reliance on student charges.

*Frail balance sheet with expendable financial resources of negative $0.4 million cushioning debt and operations a negative 0.01 times and negative 0.01 times, respectively in FY 2012. Expendable financial resources are depressed by a post retirement health liability of $12.5 million

*Relatively high debt burden, with debt-to-revenues of 0.83 times at fiscal year-end 2012 (FYE 2012). The increasing average age of plant of over 21.5 years indicates likely needed future campus investments. The university added modest bridge financing for several capital improvement initiatives which have been partially repaid through gift revenues. There are no future borrowing plans.

* Aggressive endowment investment portfolio compared to colleges and universities of similar size with relatively high exposure to private equity and hedge funds within the rated group. The university had $17.8 million in monthly liquidity as of FYE 2012, which is low in light of the university's reliance on endowment revenues to support operations and debt service payments.

STRENGTHS

*Multi-year expense reductions in FY 2012 and FY 2013 in response to limited revenue growth are projected to improve operating performance in FY 2013.

* Total financial resources remain relatively healthy for the rating category at $85.3 million in FY 2012, though donor restrictions currently limit the ability of financial resources to offset debt and operations. Total financial resources cushioned direct debt by 1.75 times and operations 1.26 times in FY 2012. An estimated $74.7 million, or 87% of total financial resources, remains permanently restricted as of FY 2012.

* Sustained philanthropic support, with three-year average annual gift revenues of $5.8 million from FY 2010-FY 2012 and expect that fundraising will improve, as Wittenberg raises funds for capital improvements and to grow the endowment.

*New president, who started in July 2012, is working with management and the board to improve Wittenberg's financial position. The board has recruited or replaced other key management positions, implemented new strategic and operational initiatives and detailed internal performance measurement standards.

OUTLOOK

Wittenberg University's negative outlook anticipates weak performance over the next 12-24 months as the university's board and management continues to grapple with decreased revenue projections and continued liquidity pressures.

WHAT COULD MAKE THE RATING GO UP

Unlikely at this time given the negative outlook. Over a longer period of time, upward rating pressure would be driven by sustained improvement in operations, resulting in consistent coverage of debt service, coupled with improved liquidity and stable enrollment and net tuition trends

WHAT COULD MAKE THE RATING GO DOWN

Further reduction in liquidity; continued operating deficits, inability to at least stabilize enrollment or tuition revenue; additional borrowing. A further downgrade could result in a rating differentiation for the Series 1999 and 2005 bonds with a debt service reserve fund and the rating on the Series 2001 bonds that do not benefit from a debt service reserve fund.

Principal Methodology

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.

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

Erin Veronica Ortiz
Analyst
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 Wittenberg University, OH to B1 from Ba2; outlook negative
No Related Data.
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