Falling enrollment put a New York City liberal arts college in danger of a bond rating downgrade.
Moody’s Investors Service revised the outlook on Marymount Manhattan College to negative from stable while affirming its Baa2 rating Monday, citing struggles with headcount and a heavy reliance on tuition revenue. The college’s rating, which is just two notches above investment grade, applies to Series 2009 Bonds issued by the Dormitory Authority of the State of New York.
“The revision of the outlook to negative is based on a significant enrollment decline in fall 2019 and projected weakening of financial performance for fiscal 2020,” Moody’s analyst Pranav Sharma wrote. “The negative outlook reflects the likelihood of a rating downgrade if the college is not able to stabilize fall 2020 enrollment and improve financial results in fiscal 2021.”
Sharma noted that MMC saw a material 10% decline in full-time student enrollment in fall 2019 a year after a 3% drop, which creates a negative impact on financial performance given that 93% of the school’s revenues derive from student charges. The college on Manhattan’s Upper East Side also struggles with low liquidity with just 106 days of cash on hand and weak fundraising, according to Sharma. The school has an undergraduate enrollment of around 2,000.
Despite its financial challenges, MMC received an affirmation of its Baa2 rating due to a strong track record of financial discipline that has resulted in consistently positive cash flows and solid debt service coverage, according to Sharma. He noted that while MMC’s large enrollment drop in fall 2019 will result in weaker fiscal 2020 performance, the college has implemented expense reduction measures to narrow the operating deficit to $1.3 million compared to $900,000 surplus last year.
MMC is also benefiting from the 1986 sale of its air rights on one of the campus buildings, which resulted in a one-time $9.6 million cash influx that the school has booked as revenue for 2020.
“These funds will bolster the college's flexible reserves and provide the college time to invest in its market and stabilize enrollment,” Sharma said. “MMC further benefits from its marketable real estate holdings in Manhattan, and its leverage remains manageable from an operating perspective.”
The Series 2009 revenue bonds are secured by general revenues of the college and also secured by a mortgage pledge on a condominium building along with a cash funded debt service reserve fund. All of the college's debt is fixed rate with level amortization through fiscal 2029.
“MMC is deliberately shaping its enrollment portfolio, which has led us to reduce enrollment in several over-capacity undergraduate programs," MMC president Kerry Walk said in a statement. "At the same time, the College’s pre-college programs have seen significant growth, which is not taken into consideration in Moody’s rating determination. We are confident about the future.”
