Quinnipiac University’s financial operations and debt service coverage moved from a growth to a stable path as Moody’s Investors Service revised the university’s outlook on Sept. 16, due to its enrollments and earnings downturns.
“After decreased enrollment and an annual revenue decline in the 6-7% range for fiscal 2020, additional revenue softening may occur into fiscal 2021 due to a possible contraction in net student revenue,” the report stated.
A stable outlook means that the credit rating is likely to remain the same over the medium term, while a positive outlook means that there is a higher likelihood of a rise in credit rating. Quinnipiac’s outlook was rated positive in the previous analysis in 2018.
Eric McAlley, finance assistant teaching professor, said the change is not alarming considering the state of the economy and general strain on higher education due to COVID-19. He said if Moody’s was concerned, it would have changed the outlook to negative.
“Nothing in this report indicates that the ratings are at risk for downgrade in the near term. This downgrade was to the outlook of the rating rather than the rating itself,” McAlley said.
Quinnipiac has been given an A3 credit rating, since 2010, on about $405 million of outstanding debt. A3 rating is the seventh highest of 10 ratings.
McAlley explained that there are many factors that can lead to an upgrade of the credit rating but the most important indicators are appropriate liquidity and operating cash flow to cover debt payments.
“QU needs to continue to monitor and manage cash flow from operations to maintain its current credit rating and to help prevent deterioration of liquidity and chance of potential future rating actions,” McAlley said.
Although the report stated that the outlook is stable because of the university’s “strong financial operations, robust liquidity and effective management and governance,” the rating may be downgraded if there are downside risks presented.
“While we expect the university to continue to take actions to adjust expenses accordingly to sustain strong financial operations, there will likely be narrowing in operating cash flow margins for fiscal 2021,” the report stated. “With a high 93% dependence on net student revenue, restoring enrollment stability is critical to the university’s ability to resume revenue growth and maintain favorable operating performance.”
The analysis predicts that the university will manage to keep operating cash flow margin above 20% through the next fiscal year.
Although there might be unexpected costs or revenue declines in the next year, the report states that the university can go through those as it has a strong liquidity that covers 623 days with cash readily available. With ongoing facilities, programs and technology initiatives, those will contribute to a longer-term stable student demand, according to the report.