Budget cuts to UA results in Moody鈥檚 three-step downgrade to UA鈥檚 credit rating
July 17, 2019
The credit rating committee of Moody's Corporation decided earlier today to of the 探花精选 from its current A1 rating to Baa1 with a negative outlook.
In informing the university of the action, the committee said the downgrade is a result
of the 鈥渕aterial impairment鈥 on the university鈥檚 financial outlook as well as the
鈥渟ignificant execution risk,鈥 caused by the significant reduction in state funding.
The decision drops UA鈥檚 credit by three notches, which now makes UA the second lowest
rated flagship university in the nation.
鈥淭his is a direct result of the state鈥檚 budget cut and demonstrates what we have been
saying -- the 41 percent [$136 million] budget cut to the university continues to
harm us every day,鈥 said UA President Jim Johnsen. 鈥淭oday鈥檚 news just amplifies the
impact of the state鈥檚 funding cut -- Moody鈥檚 downgrade harms our ability to bond or
borrow money at favorable interest rates and to be viewed as financially stable.鈥
According to the information provided to the university, there has never been a three-point
drop at one time in Moody鈥檚 institutional rating, and, more significantly, a rating
of Baa1 is just two notches from being viewed as a non-investment grade debt.
If the Board of Regents votes to declare financial exigency, allowing more rapid downsizing,
it would not impact today鈥檚 downgrade, Johnsen said, but it could change Moody鈥檚 outlook
for UA to be more favorable.
UA currently has financial indebtedness on several of its buildings including the UAF Engineering Building, the UAA University Center and the UAF Power Plant.
In its rationale for cutting the university budget, the governor鈥檚 Office of Management and Budget cited a 2017 Moody鈥檚 downgrade in UA鈥檚 bond rating. However, that downgrade was precipitated by the state鈥檚 poor financial condition and structural imbalance, and the state received a number of downgrades during that period.