Rating Action: Moody's assigns initial A1 issuer rating and A2 COP rating to Kansas City Metropolitan Junior College District, MO; outlook stable
Global Credit Research - 21 Aug 2020
New York, August 21, 2020 -- Moody's Investors Service has assigned an initial A1 issuer long-term rating to Kansas City Metropolitan Junior College District, MO (Metropolitan Community College). Concurrently, Moody's has assigned an A2 rating to MCC's $36.7 million Current Interest Certificates of Participation, Series 2020A and $1.5 million Capital Appreciation Certificates of Participation, Series 2020B. A stable outlook has been assigned.
The assignment of the A1 issuer rating reflects the college's unsecured general credit characteristics, including its solid market position as the second largest community college district in Missouri serving the Kansas City metropolitan area. Strong state and local operating support drives very good revenue diversity, with the largest source of revenue (tuition revenues) accounting for only 35% of fiscal 2019 operating revenues. Historically, operating performance has generated strong cash flow contributing to growth of financial reserves, with spendable cash and investments providing a very good buffer for near term operational volatility. While debt levels are manageable, pension liabilities are significant and a credit challenge, contributing to above average fixed costs. Overall governance considerations are favorable, reflecting the college's state and community links, but offset by multi-year enrollment declines that points to some weakness in the college's strategic position. Social considerations, including the prospects of further enrollment deterioration driven in the near term by the coronavirus pandemic, are also a credit driver.
The coronavirus outbreak disrupted delivery of instruction as the school moved classes online or to a virtual format from Spring 2020 through Fall 2020. We regard the coronavirus as a social risk under our ESG framework, given the substantial impact for public health and safety. Declines in net tuition revenue and state appropriations will pressure operating performance, but federal support through the CARES Act and expense cutting measures will mitigate the financial impact in the near term. The college projects it will cut expenses to match revenue declines such that total cash and investments will remain stable through fiscal 2021.
The initial A2 COP rating reflects the college's overall credit quality, more essential nature of the assets (improvements to school buildings and campus), security interest in financed facilities, but offset by the risk of non-appropriation under the annually renewable obligation.
The stable outlook reflects our expectations that MCC will absorb revenue challenges with federal aid and expense cutting measures, such that total cash and investments remain stable through fiscal 2021.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Sustained strengthening of enrollment and state appropriations such that operating revenues grow consistently (issuer rating)
- Continued growth in total cash and investments (issuer rating)
- Upgrade of the school's issuer rating (certificates)
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Continued declines to operating revenue from pressured state appropriations and net tuition revenue (issuer rating)
- Inability to adjust cost structure to declining revenues resulting in operating deficits and declining operating reserves (issuer rating)
- Material increase in financial leverage (issuer rating)
- Downgrade of the school's issuer rating (certificates)
The Series 2020 Certificates will be payable from rent under the lease. The college's obligations to pay rent and other obligations of the college under the lease are subject to and dependent on annual appropriations being made by the college for such purpose. The district has encumbered additional campus facilities for security under the lease.
USE OF PROCEEDS
The proceeds will be used to relocate the programs at the MCC Business and Technology campus and address college-wide (throughout the district) infrastructure and functional improvements. These improvements include renovation, repair and upgrade of existing facilities, replacement and repair of equipment, building new facilities, and the acquisition of real-estate and/or other facilities to accommodate current and future programs.
The Junior College District of Metropolitan Kansas City, Missouri is comprised of twelve school districts in the metropolitan Kansas City area and covers parts of four counties (Jackson, Clay, Platte and Cass) The district provides comprehensive educational programs through its five colleges: Blue River, Business & Technology, Longview, Maple Woods and Penn Valley. Fiscal 2019 Moody's adjusted operating revenues totaled $132 million and overall enrollment in fall 2019 was 10,008 full-time equivalent (FTE) students.
The principal methodology used in these ratings was Community College Revenue-Backed Debt published in June 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1121957. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
Craig Sabatini 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 Susan Fitzgerald Additional Contact Higher Education 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
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