Moody’s downgraded Rider University’s bond rating

Analysts at Moody’s Investors Service recently downgraded The Rider University bond rating, signaling that the rating agency is increasingly concerned about the institution’s precarious finances.

Rider’s rating went from Ba1 – already a non-investment grade or “junk” bond rating – to Ba2 earlier this month. Such ratings indicate to potential investors that investing in the university is risky because the university may be unable to repay its debts.

“The downgrading of the rating to Ba2 compared to Ba1 reflects the still very weak operational performance of Rider University, its dependence on a line of credit and the recent increase in leverage, mainly for funding needs. rolling, ”Moody’s analysts wrote. “Although the university has developed strategies to improve operations, a turnaround, if achievable, will take several years. “

Rider, a private university in Lawrenceville, New Jersey, has struggled with the same financial headaches that plague many private colleges and universities – declining enrollment, falling tuition fees, and ancillary income. and increasing debt.

“It is well known that the higher education landscape is changing rapidly. The global pandemic has only exacerbated the existing challenges that institutions like Rider face, while also creating new ones,” said Kristine Brown. , spokesperson for the university, in a press release. E-mail.

The expenses and lost income related to the COVID-19 pandemic have also strained the university’s finances. Rider has lost about $ 27 million in room, board, and ancillary income over the past two fiscal years and spent $ 2 million on COVID-19-related costs last year, Brown said.

Rider enrollments have also declined significantly over the past decade, from a peak of 4,588 undergraduates in the 2009-2010 academic year to 3,693 in the 2018-19 academic year. , according to data from the National Center for Education Statistics. Additionally, net tuition income fell 8% between fiscal 2016 and fiscal 2020, according to Moody’s.

In an effort to attract more students and lower its discount rate – which is the percentage of the total tuition price subsidized by institutions’ financial aid – Rider officials have reduced tuition fees by over $ 10,000 starting this fall. Tuition fees for the 2021-2022 academic year will cost $ 35,000. University officials are hoping the new sticker award will attract families who would otherwise have excluded Rider.

“The initiative changes Rider’s high tuition and high discount pricing model, creating a significant barrier for students and families who believe the sticker price immediately puts a Rider education out of reach. financially, “Brown said in a February statement.

As university leaders strive to recruit and retain more students, lingering financial challenges could work against them, said Michael Horn, co-founder of the Clayton Christensen Institute, a nonprofit think tank. Students and parents have better access to consumer information today than they did a decade ago, and Rider’s uncertain future may cause future students to not consider or patronize Rider.

The university has relied more on credit to finance its operations in recent years, according to the Moody’s report. In fiscal 2020, Rider declared debt of $ 89 million. That total rose to $ 110 million after the university issued additional bonds in fiscal 2021. The university budgeted for debt repayment as part of its normal operations, Brown said.

The recent downgrade of Moody’s will only make access to this credit more difficult, according to Horn.

“It will be more difficult for them to borrow at rates that will be attractive,” Horn said. “They basically cover the expenses right now on a line of credit. This will therefore increase future costs for the foreseeable future, which only places an increasingly heavy burden on the institution. “

Brown said the university was planning to “cut the budget” but did not anticipate layoffs at this time.

Some of the attributes of the university have kept Moody’s from lowering Rider’s credit rating even further. The university generated $ 130 million in revenue in fiscal 2020, and the main Lawrenceville campus was recently valued at $ 230 million, which is “well above outstanding debt.” wrote the analysts.

Moody’s also praised the efforts of university officials to turn the tide.

“Management’s commitment to improving financial performance in the face of weakened revenue growth prospects is a credit strength,” the report says. “The university faces multiple constraints in doing so, including a less flexible work environment and litigation surrounding the sale of its Westminster Property in Princeton, New Jersey. The university has also formulated plans to strengthen its brand and pricing power, although success is uncertain in a highly competitive and changing market environment.

University officials have taken several steps to attract more students in recent years.

“We focused on affordability and a dynamic learning environment, one that fully engages students inside and outside the classroom. cuts, ”Brown said.

Rising enrollments, increasing net tuition fees and ancillary revenues, and improving operating margins could prompt Moody’s to improve the university’s grade, the report said. On the other hand, Rider could face further degradation if its operating deficits worsen or if its material debt increases without an offsetting increase in flexible reserves.

Rider has a few options to improve his financial situation, Horn said. The first is a declaration of financial requirement, which would allow the university to give up its debts and restructure the institution from top to bottom. It would also give them the possibility of dismissing permanent and non-permanent teachers. The university’s faculty union is asking the institution to guarantee not to fire any faculty members under their next contract, but a financial requirement would bypass this potential deal.

“It would be a pretty big and bold move,” Horn said. “But that would be an attempt to save the institution.”

The university could also follow the path of Southern New Hampshire University, which quickly pivoted to focus on online and continuing education in the early 2000s after the recession increased financial pressure on the private university. Partnering with an online program management company or other third party could provide Rider with access to additional capital, Horn said. Rider could also look for a merger or acquisition partner, as many troubled institutions have done.

The last – and potentially the most difficult – option would be for university administrators to make incremental improvements to slowly put the institution in a better financial position.

“Try to attract people to the institution. Show that there is an attractive set of value propositions around Rider. Maybe they’re partnering up with employers and doing something new around job guarantees or something new, ”Horn said. “Show some confidence in the students that the institution will be there. “

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