BRADENTON, Fla. - Standard & Poor's downgraded Alabama State University's long-term ratings far into junk territory from investment grade due to the "significant" erosion of the troubled institution's reserves.
The seven-notch downgrade, to B from BBB-plus, also came with a negative outlook, S&P said Jan. 30.
"The downgrade reflects the swift and significant erosion of already limited reserves that has pressured operating liquidity," said analyst Ashley Ramchandani.
ASU anticipated using as much as $800,000 of reserves in fiscal 2013 to balance its budget, but the amount turned out to be "much larger than anticipated," S&P said.
Reserves plummeted to $13.3 million in fiscal 2014 from an already low $24 million in unrestricted net assets in fiscal 2012, for a decline of 44%, the agency said. "We believe that reserves will continue to decline through 2015, thus pressuring operating liquidity," S&P said.
"The negative outlook reflects our anticipation that the university will continue to face liquidity pressure from an operations standpoint as well as contingent liquidity risk associated with its outstanding variable-rate debt and associated swap," said Ramchandani.
S&P's negative outlook also reflects uncertainty associated with an ongoing forensic audit of the university.
ASU, founded in 1867, is located in Montgomery.
Gov. Robert Bentley, who is president of the historically black public university's board, hired a forensic firm to audit ASU more than two years ago. Preliminary results showed indications of waste and nepotism though the audit still has not been completed.
In December, the Southern Association of Colleges and Schools Commission on Colleges continued the "warning" status on the accreditation of all ASU programs are determining that the university failed to demonstrate compliance with control and stability of its finances and research funds as well as control of federal program responsibilities.
SACs expects to determine whether to continue ASU's accreditation in June, according to a Dec. 15 status report.
Moody's Investors Service dropped Alabama State's bond ratings to junk in July citing declining liquidity and an inability to cover debt service for a multi-year period among the reasons.
Moody's downgraded ASU's general tuition and fee revenue bond rating to Ba1 from Baa1, and the 2005 lease revenue bond rating to Ba2 from Baa2. The outlook is negative.
