BRADENTON, Fla. — Moody's Investors Service downgraded the University of West Alabama's bonds to A3 from A2 citing weak financial performance and declining enrollment.
The lower rating applied to about $53.5 million of outstanding bonds, Moody's said July 31. The outlook remains negative.
"The downgrade to A3 reflects UWA's weak operating performance driven by enrollment and revenue declines combined with operating deficits and declining liquidity," said analyst Mary Kay Cooney. "While some expense reductions have been made, the decreases have not matched the decline in revenues."
Moody's said the new rating incorporates the university's small and relatively stable core undergraduate market in western Alabama, as well as improved operating support stability from the state and sufficient liquidity to cushion near-term operations.
"Challenges facing UWA include increasing competition, particularly in the on-line market, deterioration in operating cash flow, and rising pension expenses," Cooney said. "The university's financial leverage has materially increased over the last four years with new debt issued in 2010 and 2012.
"The increasing debt service commitments highlight the importance of improving cash flow in support of debt service to maintain credit quality," she said.
The negative outlook reflects the expectation that student revenue will continue to decline over the near term as the university grapples with stabilization of its graduate programs and several years of smaller entering classes, according to Moody's.
Weak cash flow operations and uncertainty in the willingness and ability of the university to adjust expenses are also factored into the reasoning for maintaining the negative outlook.
"Additional declines in operating revenue or failure to reduce expenses to generate marked improvement in cash flow from operations could result in negative rating action," Cooney said.
UWA, chartered in 1825, is in the west-central Alabama city of Livington and operates under the auspices of the State Board of Education. It is a state-supported, coeducational institution governed by a board of trustees appointed by the governor. The college offers master's and education specialty degrees in liberal arts.
Moody's said the university's core undergraduate market is expected to remain relatively stable with an enrollment of around 2,000, though "fierce competition at the graduate level, particularly from other online degree providers, will require tactical enhancements to rebuild enrollment."
