Moody's Investors Service has upgraded Fairfield University's issuer credit and debt ratings to A2 from A3 and revised the outlook to stable from positive. The Connecticut-based Catholic university had $260 million in debt outstanding as of June 30.
The upgrade comes in connection with the Connecticut Health and Educational Facilities Authority’s proposed $28 million of Series U revenue bonds to be issued for the university.
“The upgrade of Fairfield University's issuer and debt ratings to A2 from A3 and the assignment of the A2 to the forthcoming bond issue reflects the university's robust, sustainable operating margins supported by consistent growth in net tuition revenue as well as strong budgetary management,” Moody’s said.
“Solid EBIDA margins will support continued investments in facilities including upgrading student residences and further reducing an already low age of plant. Growth in wealth through investment returns, retained cash flow and gifts provides additional financial flexibility and has boosted liquidity,“ according to the rating agency.
Moody’s said the stable outlook reflects its expectations the university will have continued strong operating margins while building reserves and liquidity while not adding debt.
The university was founded in 1942 and is a Jesuit Catholic institution. The private university offers both undergraduate and graduate programs and is located in Fairfield County, Connecticut.
The university has about 5,311 students enrolled in the fall semester and generated $243 million of revenue in fiscal 2021. The campus also has an all-boys preparatory high school with around 760 students.
Moody’s cited management's ability to achieve positive financial performance, successful enrollment management and academic renewal. It said this “is reflective of its very good financial strategy as well as its management credibility and track record, a key governance consideration under our ESG framework and a driver of the rating upgrade.”
In October, the university Board of Trustees
Rising enrollment and improved market position reflect strong student demand in a highly competitive environment, Moody’s said, which is further heightened by the challenges of the coronavirus pandemic.
The rating agency added that above average donor support backs up the university's very good brand and its strategic positioning.
Still, Moody’s said that the university has a relatively high financial leverage relative to operating revenue, cash flow and financial reserves and added that the backloading of maturities in its sales detracts from any future borrowing flexibility.
In addition, Moody’s cited a high reliance on student charges and a low yield on incoming freshmen, which may expose the university to shifts in student demand in a highly competitive environment.
In August 2020, Moody's affirmed the university’s ratings; it also kept a positive outlook on the credit after raising it from stable in 2019.
Municipal bonds continue to serve as a major source of capital funding for higher education institutions has been consistently high.
Since 2011, almost $360 billion of bonds have been sold for higher education purposes, with the most issuance occurring in 202 when $42.9 billion of bonds were sold.
