Rating Action: Moody's revises Emmanuel College (MA)'s outlook to negative; affirms Baa2
Global Credit Research - 14 Jan 2021
New York, January 14, 2021 -- Moody's Investors Service has revised Emmanuel College, MA's outlook to negative from stable. We have also affirmed the Baa2 rating on approximately $185 million of outstanding bonds issued through the Massachusetts Development Finance Agency.
The revision of the outlook to negative reflects the potential near-term financial impacts of the coronavirus pandemic, which has exacerbated preexisting enrollment and net tuition revenue stress. A 11.5% full-time equivalent (FTE) enrollment decline combined with a marked decrease in housing occupancy in fall 2020 will lead to a material revenue decline in fiscal 2021. While management has taken swift action to mitigate the decline through expense reduction strategies, operating results will be weak and may require the use of university liquidity to cover an operating deficit. Favorably, the college has built significant liquidity over the last decade through strategic monetization of assets and favorable investment returns, allowing it to fund a deficit and still maintain healthy liquidity relative to its operations. Uncertainties remain with respect to spring 2021 enrollment and the ongoing impact of the pandemic on student-driven revenue. Furthermore, the impact of cuts to staff and services may weaken competitive positioning in an already highly crowded student market. We consider the pandemic to be a social risk under our ESG framework due to its implications for health and safety.
Affirmation of the Baa2 ratings is based on the college's healthy flexible reserves and highly marketable real estate as well as management's willingness to adjust expenses to reduced revenue, all of which support its good strategic positioning. Flexible financial reserves provide a healthy buffer to financial operations amounting to 1.9x operating expenses. Liquidity remains favorable with over 750 monthly days cash on hand in fiscal 2020. Offsetting challenges include the college's high reliance on student charges combined with a highly competitive market. A high debt burden, with total debt to operating revenue of 2.5x, also constraints financial flexibility.
The negative outlook reflects the potential for credit deterioration if weaker financial performance and enrollment pressure extend beyond fiscal 2021, reflecting more fundamental market and financial challenges outside of the pandemic.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
-Significant strengthening of student demand reflected in sustained growth of net tuition revenue
-Substantial increase in flexible reserves
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
-Longer term impairment to market position evidenced by inability to recover enrollment losses in fall 2021
-Sustained weakening of operating performance
-Material decline in liquidity
The Series 2016-A and Series 2016-B bonds are a general obligation of the college. The bonds have an additional mortgage security on the new residence hall. The college has entered into an agreement with MCPHS University to lease 260 beds. During the initial 12 years of the lease, rent payments from MCPHS University will be paid into a lock box, which will provide security for the bonds.
Emmanuel College is a coeducational Roman Catholic liberal arts college located in Boston, Massachusetts, with programs mostly focused on liberal arts and science. The college enrolls approximately 1,800 students and generates $73 million of revenue.
The principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. 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_1243406.
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.
Pranav Sharma 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 Shaffer 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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