Moody's Investors Service downgraded Yeshiva University debt to B1 from Baa2 Thursday afternoon, citing the school's extremely narrow liquidity and financial resource erosion.
Moody's action affects $315 million in rated debt. Moody's kept the rating on review for a further downgrade.
Yeshiva is a Jewish university of Jewish and secular studies based in New York City. It has about 3,000 undergraduate and 3,500 graduate students.
"The magnitude of the downgrade to B1 reflects the depth of operating and cash flow deficits concurrent with extremely thin unrestricted liquidity and lack of a clear strategy to regain financial equilibrium," said analyst Emily Schwarz and senior analyst Karen Kedem.
"Minimal headroom, if any, expected under covenants exacerbates risks of limited liquidity and heavy reliance on external bank lines," they continued. "Extraordinary reliance on the endowment to fund operations and cover debt service, likely to continue for the near-term, will erode or, at best, prohibit growth of financial reserves in line with peers."
The analysts also note the school's history of strong donor support, healthy revenue diversity and marketable real estate. "The rating favorably incorporates the relatively large size of the university's assets despite the high proportion that is restricted and an endowment with a high allocation to illiquid investments."
"Our leadership team and outside advisors are working diligently to build a sustainable Yeshiva University for the future," said Matthew Yaniv, Yeshiva director of media relations. "In that respect we are highly focused on overcoming our specific challenges, as well as those faced by most private universities in a difficult higher education landscape.
"The recent decision by Moody's was not unexpected based on its previous commentary and, in fact, we are already addressing many of the issues outlined in the report," he said. "Importantly, Moody's noted several positive considerations including our history of strong donor support and healthy revenue diversity, as well as the relatively large size of the University's assets (including marketable real estate and the endowment). We will continue to confer with our rating agencies and other financial institutions to keep them fully informed of our remedial plans and actions to earn their increased confidence over time.
"A YU education is deeply valued and desired - witness our 16 percent increase in first-time undergraduate student enrollment over the past two years - and there is no question that the university will be here for generations to come, fulfilling its unique and vital mission as it has for more than a century."
In early December Standard & Poor's downgraded the university to A from A-plus.
