Adams State University received a major boost when Moody’s Investors Service revised the University’s financial outlook to stable from negative in its most recent credit rating released this week.
“The revision of Adams State University’s (A3 stable) outlook to stable reflects the university’s improved operating performance, growth in liquid reserves, and governance stability,” Moody’s reported. “The operating cash flow margin in fiscal 2019 was a strong 21%, driven by an accumulation of expense reductions over multiple years and increased state support boosting revenue during the fiscal year.
“Spendable cash and investments, as well as monthly liquidity, improved through retained cash flow, providing additional operating flexibility in a time of uncertainty. Governance stability and enhanced fiscal oversight has improved the university’s strategic positioning and is a key ESG driver of the outlook revision.”
Adams State earned the only upgraded rating of all the schools Moody’s reviewed. The enhanced rating underscores Adams State’s committed strategy to managing costs in an environment of changing revenue forecasts.
“At a time when many colleges and universities are receiving credit rating or credit outlook downgrades due to COVID-related challenges, Adams State University has been recognized for its prudent financial management and for successfully navigating these challenges with a rating outlook upgrade to ‘stable’ by Moody’s Investors Service,” said North Slope Capital Advisors President Steph Chichester.
Adams State President Cheryl D. Lovell credits the employees of the University and the efforts they’ve made to help manage costs while remaining highly productive.
“This gives the entire campus validation for their hard work and commitment for a stronger Adams State,” said President Lovell. “Moody’s revised rating gives us tremendous momentum heading into our Centennial Year in 2021 and sends a very definite and strong signal that Adams State has a bright future.”
“Our revised and improved rating status is a remarkable achievement, particularly in this market and at this time,” said Michele Lueck, Chair of the Adams State University board. “We must remember that this is the result of disciplined, hard work by the administration, faculty, staff, students and board of Adams State. The board applauds Dr. Lovell’s steady hand and pragmatic leadership. Today marks a significant milestone as we steward ASU into its next 100 years.”
For full Moody’s Press Release see below:
Moody’s revises Adams State University, CO’s outlook to stable; affirms underlying A3 and Aa2 enhanced ratings
Moody’s Investors Service has revised Adams State University, CO’s outlook to stable from negative. We have affirmed the A3 underlying rating of the university on approximately $47 million of outstanding debt. Concurrently, we have affirmed the Aa2 enhanced rating on approximately $39 million of outstanding debt. The outlook of the Colorado Higher Education Enhancement Program is stable.
The revision of Adams State University, CO’s (A3 stable) outlook to stable reflects the university’s improved operating performance, growth in liquid reserves, and governance stability. The operating cash flow margin in fiscal 2019 was a strong 21%, driven by an accumulation of expense reductions over multiple years and increased state support boosting revenue during the fiscal year. Spendable cash and investments, as well as monthly liquidity, improved through retained cash flow, providing additional operating flexibility in a time of uncertainty. Governance stability and enhanced fiscal oversight has improved the university’s strategic positioning and is a key ESG driver of the outlook revision.
The A3 underlying rating reflects the university’s designation as a Hispanic Serving Institution and importance to the State of Colorado (Aa1 stable) in providing higher education to the southeast region of the state. A highly competitive student market will continue pressuring enrollment, though the university has demonstrated the ability to grow net tuition revenue despite challenges. State support, which saw recent favorable improvement, will decline in fiscal 2021 with a net 5% cut in place with significant uncertainty still surrounding fiscal 2022 support. Like other universities in Colorado, state support remains weak compared with other public universities. Other credit considerations include a small operating base that limits future material expense reductions, historically limited fundraising capabilities, and an outsized pension liability that could increase future expense pressures.
The Aa2 enhanced rating incorporates the structure and mechanics of the Colorado Higher Education Enhancement Program, which is based on the State of Colorado’s rating.
The stable outlook reflects our expectations of continued double-digit operating cash flow margins and continued retainment of cash flow. It also incorporates no additional new debt in the near-term.
The stable outlook on the enhanced rating reflects the outlook for the programmatic rating which currently mirrors the outlook of the State of Colorado.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
– Material increase in total cash and investments
– Significant strengthening in its student market reflected in multiple years of enrollment and net tuition revenue growth
– Substantial improvement in funding support from the State of Colorado
– For the enhanced rating: upgrade of the State of Colorado rating
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
– Multiple years of thinner operating cash flow
– Inability to maintain close to stable enrollment
– Material use of available reserves
– For the enhanced rating: downgrade of the State of Colorado rating
Outstanding bonds are secured by pledged revenues, which include net revenues (gross revenue less maintenance and operation expenses) from facilities, including substantially all auxiliary facilities. The pledge also includes 10% of the university’s tuition revenues as long as it maintains enterprise status. The bonds are further secured by a pledge of a portion of student fees. The university reported debt service coverage of 2.2x in fiscal 2019.
Adams State University is a small regional public university located in Alamosa, Colorado, serving students of the San Luis Valley and designated as a Hispanic Serving Institution. The university was founded in 1921 as a normal school and has grown to serve a mix of undergraduate, graduate and distance learning programs. In fiscal 2019, the Adams State recorded operating revenue of $58 million and had fall full-time equivalent (FTE) enrollment of 3,133 students.
The principal methodology used in the underlying ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. The principal methodology used in the enhanced ratings was State Aid Intercept Programs and
Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422.
Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
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