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Moody’s Credit Update Points Fingers: Study Places Blame on Joel, Board; Not Markets, Madoff

In a damning March 25th report, Moody’s Credit agency pointed to a number of critical judgment errors and chronic mismanagement that sunk the university to its worst financial crisis in the school's history. The “Credit Focus update” contradicts the school’s administration, which—in emails and town hall meetings—blamed poor markets, the Recession, and the Madoff scandal for the current financial woes.

The report highlighted the university’s “untenable business model,” which, despite short term improvements in financial reporting, some cost reductions, selling of real estate, and employment of external consultants, has yet to become sustainable. “The severity and long duration of Yeshiva’s operating deficits are primarily due to weak financial management and the board’s unwillingness or inability to act,” the study stated.

A university spokesperson said, “We are surprised by this decision as the material facts in the report have, in fact, improved since the previous downgrade.” The university did not provide details of this improvement by the time of publication.



The report comes three weeks after the agency downgraded YU to a “highly speculative” B3, only one grade above “substantial risk.” On March 6, a day after Moody’s announced its downgrade, YU’s bonds were the most traded in the $3.7 trillion U.S. municipal market, according to Bloomberg. YU’s bond rating will constrict its ability to borrow, which is “vital to its near-term viability,” Moody’s noted.

Calls placed to YU board members were not returned, though one board member, who wished to remain anonymous, agreed to speak to The Commentator.  He dismissed the report and the financial crisis, saying “we will get over this problem in due time.”

The credit report pointed to three causes of YU’s “rapidly deteriorating” credit: poor financial oversight and high expenses, extremely thin unrestricted liquidity, and a high reliance on banking and debt. Importantly, the report dismissed the losses from the Madoff Scandal in 2008 as a significant factor in the current rating report.

“The $100 million write-down related to the Bernard Madoff scandal is not a primary cause of the university’s current liquidity or operational problems,” the report stated, “but it does demonstrate how Yeshiva’s poor governance has historically impacted investment management and liquidity.”

Under the leadership of President Joel, the university continued to place resources in a fund managed by a board member--Bernard Madoff, continued to rely on a single manager for a high concentration of its funds, and did not employ enough oversight to manage the fund property, the report noted.



The report also pointed to the President’s decision to rapidly increase academic expenses at the Manhattan and Bronx campuses as a key driver of the university’s large operating deficits. Under President Joel’s tenure, the university expanded programs, constructed costly buildings, and hired over 100 tenured faculty members. Net tuition revenue, which represents a quarter of total revenue for YU, “stagnated over the past five years in part due to increasing competition as other universities attract Yeshiva’s core market.”

The university's leadership “faces a delicate balancing act as material changes to programs, resources, or the core campuses could negatively impact the university’s reputation and donor support, both critical for the longer term viability of Yeshiva.”

“The university’s near-term financial viability,” the report concluded, “depends on substantial and swift actions.”