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Connecticut Health & Educational Fac. Auth. -- Moody's revises Connecticut College's (CT) outlook to negative; assigns and affirms A2

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Rating Action: Moody's revises Connecticut College's (CT) outlook to negative; assigns and affirms A2Global Credit Research - 19 Jan 2022New York, January 19, 2022 -- Moody's Investors Service has assigned an A2 to the proposed $59 million Revenue Bonds, Connecticut College Issue, Series M. The bonds, to be issued through the Connecticut Health and Educational Facilities Authority, have an expected final maturity in 2052. Moody's has also affirmed both the A2 issuer and debt ratings. The outlook is revised to negative from stable. The college has total pro forma debt of about $132 million.RATINGS RATIONALEThe outlook revision to negative is largely driven by a material increase in debt to revenue, which rises to 1.3x with the new bond issuance, along with a significant weakening in debt affordability from operations. Despite strong financial management, continued net tuition revenue pressures will make it difficult for the college to materially reduce its pro forma debt to EBIDA of nearly 11x over the next one to two years.The affirmation of the college's A2 issuer rating is supported by its very good brand and strategic positioning as a selective liberal arts college with substantial wealth, strong liquidity, and excellent donor support. Significant financial resource appreciation driven by fundraising and outsized investment returns partly mitigate the additional leverage from the bond issuance. Total cash and investments topped $486 million for fiscal 2021, which covers expenses and pro forma adjusted debt a solid 4.9x and 3.7x, respectively. Further, very good financial strategy and policy increases prospects for achieving incremental improvement from the 12% EBIDA margin for fiscal 2021.While competitive headwinds remain, the college's strong academic reputation will help sustain steady student demand and provides a reasonable likelihood that the college can restore revenue growth. However, while the new bond issuance provides funds for campus infrastructure improvements, the college's very high age of plant at 23 years could impair its competitive position if not addressed. Favorably, excellent philanthropy and a strong 433 days cash on hand provide resources for strategic reinvestment to build on institutional strengths and partly address capital needs.The assignment and affirmation of the college's A2 debt ratings incorporate the general obligation characteristics of the bonds.RATING OUTLOOKThe negative outlook acknowledges the significant increase in cash flow leverage from the new bond issuance, which is partly mitigated by the solid financial resource coverage of debt. An inability to sustain 2x debt service and lower debt to EBIDA to below 10x could result in a downgrade.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material strengthening in brand and strategic positioning driven by stronger student demand and improved revenue diversification- Outsized growth in total wealth and liquidity relative to peers, materially strengthening coverage of debt and expensesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Failure to improve debt affordability while making progress towards consistently reinvesting in facilities equal to, or above, depreciation- Erosion in student demand or philanthropy- Significant downturn in liquidity relative to expensesLEGAL SECURITYAll bonds are on parity and unsecured general obligations of the college. A failure to maintain combined unrestricted and temporarily restricted net assets equal to greater than 50% of total indebtedness would result in an event of default and a potential debt acceleration. Inclusive of the new Series M bonds, combined unrestricted and temporarily restricted net assets to total pro forma indebtedness is about 232% for fiscal 2021. In addition to this covenant, the college is also subject to certain restrictions on incurrence of additional debt as well as a requirement to maintain a credit rating of at least Baa2.USE OF PROCEEDSProceeds from the proposed Series M bonds will be used to finance the costs of various capital projects over a three-year period beginning in fiscal 2022, including the renovation of existing residence halls, academic buildings, and athletic facilities. Proceeds will also be used to refund outstanding Series J and Series K bonds for economic savings.PROFILEConnecticut College is a small, private liberal arts college located in New London, CT. Its strong academic reputation is highlighted by its 41% admit rate on first year applicants in fall 2021. For fiscal 2021, Connecticut College generated operating revenue of $100 million and enrolled 1,817 full-time equivalent (FTE) students as of fall 2021.METHODOLOGYThe principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1257002. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Christopher Collins Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Florence Zeman Additional Contact Housing JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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