Yeshiva Credit Rating Downgraded by Moody’s
The allegations of sexual and emotional abuse perpetrated by three faculty members at MTA have continued to wreak damage upon Yeshiva University’s reputation.
In July, Moody’s Investors Service, a major credit rating agency, downgraded Yeshiva’s credit rating from A2 to Baa1, citing “uncertain outcome and impact on student demand and philanthropy of recently announced litigation against the University.” The litigation, of course, refers to the $380 million federal lawsuit filed in early July by nineteen former students of MTA, over claims of abuse by two rabbis in the 1970s and 1980s and the institution’s cover-up. Moody’s appears fearful that the lawsuit will cause both enrollment and donations to decline.
In addition to the lawsuit, Moody’s cites multiple years of operating deficits, growing debt, and weak cash flow as reasons for this downgrade. It also points to the University’s significant reliance on hedge funds and other investment strategies, which could limit liquidity of money. Yet the report also states certain strengths of the institution that could help upgrade the rating in the future, such as Yeshiva’s unique niche as a comprehensive New York university catered to Jewish students and improvements in fundraising. Moody’s will continue to monitor the University’s finances, enrollment, and the litigation process in order to properly re-assess the school’s credit rating at fiscal year-end.
According to Moody’s, the purpose of its ratings is “to provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged.” A rating of A2 is considered an upper-medium grade and reflects a low credit risk; Baa1 is considered a medium grade and reflects a medium credit risk. Banks and other lenders use credit ratings to assess the risk of lending money. This downgrade affects Yeshiva’s $323 million line of debt through the Dormitory Authority of the State of New York and will affect the University’s ability to borrow more money. In addition, the downgrade reflects a trend in the higher education industry in which many universities face similar financial troubles, which consequently affects their credit ratings. Moody’s issued a report in August that expects challenges for both public and private universities due to lower enrollment, higher education costs, and innovative educational models bringing new competition into the industry.
Interestingly, the other two big credit rating agencies, Standard and Poor’s Ratings Services and Fitch Ratings, have not downgraded Yeshiva’s rating for this fiscal year. In both 2011 and 2012, Standard and Poor’s slightly downgraded Yeshiva’s rating due to a large and growing deficit, but the credit agency issued a report in January of this year expecting an overall rise of institutional ratings in the U.S. higher education sector. According to Standard and Poor’s ratings, Yeshiva has an A+, which is the most common rating for private universities. It remains to be seen whether the recent lawsuit will affect the other agencies’ ratings for the upcoming fiscal year.
