Moody’s Investor’s Service released a rating update report for Saint Mary’s College of California on October 11, 2011. The rating update report follows a rating update report issued by Moody’s in August that placed the College on a 90-day watch list for a possible rating downgrade.
The most recent rating update report affirms the College’s current Baa1 rating and removes it from Moody’s watch list. The rating update also assigns a negative outlook to the College.
The affirmation of the College’s current credit rating reflects the College’s stabilizing market position, increasing net tuition revenue, positive operating results, increased giving levels, and plans to favorably amend existing credit covenants and related bond documents. The negative outlook primarily reflects the College’s debt structure which includes a high exposure to variable rate debt and an interest rate swap agreement. Moody’s has also assigned a negative outlook to the entire U.S. higher education sector.
It should be noted that College staff, financial advisors and the Board of Trustees Finance Committee continue to assess further modifications to the College’s debt structure beyond those currently planned and agreed to by Bank of America Merrill Lynch. Efforts to further modify the debt structure include the pursuit of changes to the College’s swap agreement in order to decrease collateral posting requirements, which are negatively impacting operating cash flow. The current increased level of swap agreement collateral postings, it should be noted, are a direct result of the Federal Reserve’s new “twist” strategy to artificially lower long-term interest rates.
In summary, it is significant that Moody’s has recognized the growing operating strengths of Saint Mary’s College and has removed it from its watch list. It is also significant that the College will be making further changes to its debt structure and will continue to improve its operating results. These actions, in turn, should position the College for a future change in outlook and/or a credit rating upgrade.
If you have any concerns or questions about this report, please feel free to contact me. Thank you.
Peter A. Michell, Vice President for Finance