Moody’s Changes YU’s Financial Outlook from Negative to Stable on Eve of Rabbi Berman’s Transition into YU Presidency
In a credit rating released February 28, Moody’s Investors Service affirmed the B3 junk rating on YU’s bonds, but changed YU’s outlook from “negative” to “stable” for the first time since 2009. The report cited “material increase in unrestricted cash and investments” that have “significantly improved the university’s liquidity position.”
Moody’s noted that recent improvements to YU’s finances should allow its financial management team to “execute its plans and reach financially sustainable operations.” The rating service explained that this change also reflects their “expectation that continued operational improvements will reduce the pace at which the university uses liquid reserves to fund structural cash deficits.”
The news is not all positive, though, as an affirmation of YU’s B3 rating reflects continued high credit risk. A B3 junk rating on a bond means that the bond is non-investment, speculative grade. This rating significantly affects Yeshiva’s ability to borrow more money.
The reaffirmed B3 rating, according to Moody’s, is based on YU’s “very weak fiscal and operational condition.” Though the outlook is now stable, negative but improving cash flow is expected to continue as YU “continues to adjust its business model and right size operations.” Moody’s also referenced challenges specific to YU’s mission, explaining that the B3 rating “also reflects challenges associated with growing revenue in a highly competitive market with a narrow undergraduate student focus.”
The decline in YU’s bonds began in April 2009 when Moody’s downgraded YU bonds from Aa2 to Aa3, assigning them a negative outlook. The slide continued over the next few years until, on March 5, 2014, Moody's downgraded YU’s bond rating from B1 to B3 and reaffirmed the negative outlook, attributing the downgrade to “extremely thin and unstable unrestricted liquidity, with significant reliance on external facilities.” Cash and liquid investments were scarce at the time – according to Moody’s, as of fiscal year-end 2013, unrestricted cash and investments that could be liquidated within one month covered only ninety-one days of expenses. YU’s endowment was therefore in danger, with increasingly severe operating deficits requiring YU to draw heavily from its endowment in order to cover daily expenses.
More recently, on February 9, 2016, Moody’s reaffirmed YU’s B3 rating and negative outlook, citing factors that could lead to an upgrade such as “substantial improvement in unrestricted liquidity” and “progress towards balanced operating performance.”
This upgrade from “negative” to “stable” comes shortly after the departure of three of Yeshiva’s senior fundraisers: Seth Moskowitz, Alan Secter, and Howard Charish. Fundraising is one of YU’s principal means of increasing available cash.
On December 12th, Seth Moskowitz, the chief administrator of YU’s fundraising office, abruptly vacated his position of Vice President of Institutional Advancement. His departure came the morning after the Hanukkah Dinner and Convocation, YU’s biggest annual fundraising event. Secter and Charish have also recently departed -- the former to work at another nonprofit organization, and the latter to retirement. The university has yet to replace any of these fundraisers; for the time being, President Richard Joel is personally overseeing Institutional Advancement until he steps down on July 1.
The credit rating update also comes the day before President-Elect Rabbi Ari Berman begins his transition into the YU presidency. On Wednesday, March 1, Rabbi Berman will assume a temporary residence in Washington Heights and join YU’s payroll. In their report, Moody’s directly referenced this transition in leadership, pointing out that “the now sufficient level of unrestricted liquidity is a stabilizing factor during a highly transitional period, with a new president scheduled to join the university prior to the start of academic year 2017-2018.”
President-Elect Rabbi Berman’s background is not in financial management, leading many to note that, judging by his history and background, he looks to be a different sort of presidential figure from Current President Richard Joel. Rabbi Berman is an ordained rabbi with a doctorate in Jewish thought and little experience with financial management, while President Joel is a layman who, before he became president of YU, served as Associate Dean of Cardozo School of Law and President of Hillel. In an interview with The Commentator, Rabbi Berman affirmed the importance of strengthening YU’s financial situation, but noted that finances and values are inextricably linked at YU. “If we don’t have clarity,” he explained, “if we don’t explain how our Torah is translated into the world around us, we’re not going to get the means either. We need to explain the value of YU today if we want to increase enrollment and if we want to broaden our donor base.”
Picture Credit: Bloomberg News