Moody’s Downgrades YU’s Credit Rating in Wake of COVID-19 Pandemic
Moody’s Investors Service downgraded Yeshiva University’s credit rating from “positive” to “stable” in their May 20th report. This report marks the first demoted rating since 2014 when the university was categorized in the subpar B3 ranking.
Moody’s is the leading credit rating company that provides international financial research on both commercial and government bonds. Their evaluation was based primarily on the COVID-19 pandemic and its subsequent financial disruptions. While Moody’s acknowledged that YU “successfully narrowed the magnitude of annual operating deficits, in line with its ongoing fiscal stabilization plan,” the coronavirus outbreak imperiled many key revenue streams, such as tuition with predicted lower student enrollment for the coming year.
The lowered ranking of YU connotes a red flag to investors and funds, as the B3 rating reflects continued high-credit risk. This rating will significantly affect YU’s ability to borrow money in the future and may cause the university to pay higher interest rates on its current and future debts.
This year's report emphasized the unpredictability of the current situation. According to Moody’s, the volatile financial market, the possibility of “downward pressure” on New York real estate prices and shrinking support from donors are substantial challenges that YU will need to overcome to boost its rating. If, however, YU suffers a “more rapid or steep decline in liquidity than currently anticipated” or cannot cut sufficient operating costs, their rating could drop lower.
S&P Global, another prominent credit rating agency, revised their 2020 outlook toward many public and private universities (including YU) to “negative,” recognizing “[exacerbated] pressures already facing colleges.”
Moody's credit evaluation of YU has gradually progressed in recent years. In 2014, the largely negative report was highly critical of President Richard Joel and YU's board. In the days leading up to President Ari Berman's inauguration in 2017, YU's rating was updated to mark new stability. For the last two years, however, the investor service has provided a positive outlook towards YU, citing “indication[s] of progress toward achieving a more sustainable business model” in their 2019 report.
As The Commentator previously reported, YU has already taken measures to secure its financial stability, such as raising tuition and assorted fees for next year. President Berman and other senior officials have also taken pay cuts through December, while some employees have been furloughed as a cost saving measure. Additionally, YU has launched an emergency scholarship campaign to raise funds for students in financial need. At the same time, the university refunded students’ remaining caf card balances as well as 30% of this spring semester’s housing charges.
Moody's predicts that YU's progress over prior years will be hindered and the university “will continue to draw down liquidity through at least fiscal 2022, if not beyond.”
Vice President of Business Affairs and Chief Financial Officer Jacob Harman did not respond to The Commentator’s request for comment.
Editor’s Note: The full report from Moody’s can be found here.
Photo Caption: YU has closed its campuses and moved classes online since mid-March.
Photo Credit: The Commentator