Moody's Highlights Top Factors in Higher Ed Ratings Changes

September 20, 2011

Since 2005, Moody's Investors Service has affirmed the vast majority of existing ratings of postsecondary institutions, but the upgrades and downgrades the agency has made have occurred for consistent reasons, according to a new report released by Moody’s.

The top factors driving credit upgrades include (1) consistently strong operating performance, including balanced budgets or surpluses, (2) improvement in market position and brand identity, (3) growth of wealth in balance sheets, particularly due to fund raising, (4) improvements in liquidity and reduction of debt risks, and (5) diversity of revenue and strength across business lines.

In the wake of the 2008 economic downturn, the liquidity of institutional assets became a major concern for colleges and universities. As a result, many institutions started keeping larger pools of unrestricted assets on their balance sheets. That concern is reflected in the report, with high debt and insufficient liquidity being the top factor for downgrades. The other factors were poor operating performance and cash flow; a weak market position and poorly defined market niche; a weakening of the balance sheet, often marked by a significant increase in debt; and major events such as litigation, excessive management change, or revoked accreditation.

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