Moody’s Inverstor Service has downgraded Yeshiva University’s rating to B1 from Baa2, and kept the rating on review for downgrade. According to Moody’s, “The rating action reflects the university’s extremely narrow unrestricted liquidity, resulting in reliance on external credit facilities to support operations, and prolonged severe cash flow deficits leading to financial resource erosion. The rating remains on review for downgrade to evaluate audited fiscal 2013 results, expected in March, and management’s execution of strategic initiatives to improve liquidity and operating performance.
The magnitude of the downgrade to B1 reflects the depth of operating and cash flow deficits concurrent with extremely thin unrestricted liquidity and lack of a clear strategy to regain financial equilibrium (emphasis added). Minimal headroom, if any, expected under covenants exacerbates risks of limited liquidity and heavy reliance on external bank lines. Extraordinary reliance on the endowment to fund operations and cover debt service, likely to continue for the near-term, will erode or, at best, prohibit growth of financial reserves in line with peers.
The rating reflects the immediate need for an operating and financial turnaround that is sustainable and transparent throughout Yeshiva’s consolidated businesses. Ongoing exposure to potentially negative reputational and financial impacts from pending litigation as well as organizational restructurings constrains the B1 rating.
Positive considerations for the rating include Yeshiva’s niche market position as a comprehensive university in New York City under Jewish auspices with a history of strong donor support, healthy revenue diversity and marketable real estate. The rating favorably incorporates the relatively large size of the university’s assets despite the high proportion that is restricted and an endowment with a high allocation to illiquid investments.
The review for downgrade will focus on our review and interpretation of Yeshiva’s audited fiscal 2013 results, business and financial restructuring strategies, the status of financial covenants, and future borrowing.”
The action was taken yesterday, January 9, 2014.