Rating Action: Moody's assigns Baa1 to Wheaton College, MA's Series I (2021) bonds; outlook negative
Global Credit Research - 20 Jan 2021
New York, January 20, 2021 -- Moody's Investors Service has assigned a Baa1 rating to Wheaton College, MA's proposed up to $42 million of Revenue Bonds, Wheaton College Issue, Series I (2021) (Federally Taxable). The bonds will be issued through the Massachusetts Development Finance Agency and have an expected final maturity of 2051. We also maintain Baa1 ratings on approximately $52 million of outstanding Series H (2017) bonds. The outlook is negative.
The assignment of Baa1 rating is based on college's healthy flexible reserves and liquidity, good donor support, and manageable debt burden. The college's total cash and investments of $231 million at fiscal yearend 2020 provides it with some ability to address near term market and financial challenges. Liquidity remains favorable with over 290 monthly days cash on hand in fiscal 2020. Offsetting challenges include high reliance on student charges in a highly competitive market with many competitors offering similar programs, including lower cost public institutions. The college's student demand and pricing power were challenged before the pandemic, reflected in pressured net tuition and net tuition per FTE revenue, leading to weakening operating performance. Student market pressures have been heightened by the financial impact of the coronavirus pandemic and operating margins will weaken in fiscal 2021, driven by a 6% decline in fall 2020 enrollment combined with an increasing aggregate tuition discount rate. The college plans to reduce expenses in fiscal 2021 to compensate for the revenue decline but will likely use some of its reserves to balance the budget, which will reduce its financial flexibility.
We regard the coronavirus outbreak as a social risk under our ESG framework given the substantial implications for public health and safety. In fiscal 2020, Wheaton College experienced a decline in auxiliary revenues from housing and dining operations as the pandemic compounds demographic challenges. Revenue losses were only partially offset by expense reductions. Classes are being held on campus for the 2020-2021 academic year, with some recovery of auxiliary revenue.
The negative outlook reflects the potential for credit deterioration if weaker financial performance and enrollment pressure extend beyond fiscal 2021, reflecting more fundamental student demand and financial challenges outside of the pandemic.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
-Sustained increase in enrollment with corresponding material growth in net tuition and auxiliary revenue
-Significant improvement in operating margins with debt service coverage consistently over 2x
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
-Weakened operating performance beyond fiscal 2021
-Significant decline in unrestricted reserves and liquidity
-Sustained declines in net tuition and auxiliary revenue
Bonds are unsecured general obligations of the college. The Series I and Series H bonds do not have any financial covenants.
USE OF PROCEEDS
Proceeds will be used to finance the renovation of an academic building, refinance a portion of Series H Bonds, and pay the cost of issuance.
Wheaton College is a four-year, private liberal arts college in Norton, Massachusetts, between Boston, Massachusetts, and Providence, Rhode Island. The college enrolls about 1,700 FTE students and generated $74 million in operating revenue in fiscal 2020..
The principal methodology used in this rating 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.
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 Dennis Gephardt 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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