Moody’s Investor Services, one of the nation’s premier credit rating services, has revised The University of New Mexico’s long-term rating by one level, from “Aa2” to “Aa3.” At the same time, Moody’s also revised UNM’s rating outlook to stable from negative.
The Moody’s Global Ratings reflect an institution's ability to repay long-term debt, and is based on financial data for multiple fiscal years including the fiscal year ending in 2018. The report commended the University’s “modest debt burden and good debt service coverage, essential role as the state’s flagship public university and major healthcare provider, its diverse revenue and large scope of operations….”
In June of 2018 Moody’s downgraded the State of New Mexico and identified the nation’s higher education sector as a whole as having a bleak outlook, stating that “Moody’s rationale for the change of the State’s rating was predicated on the state’s extremely large pension liabilities, spending challenges associated with a large Medicaid caseload and an economy that has lagged the nations.” Since it is atypical for public higher education institutions to have the same rating as the State they receive funding from, a rating review of UNM was initiated by Moody’s, which included a site visit.
For the University, factors such as lower state appropriations and continued declines in enrollment have prompted Moody’s to lower its rating on the debt issued on behalf of UNM to “Aa3” from “Aa2.” The report offers that a revision to the rating could occur based on the following: “increase in financial reserves and liquidity, increase in operating performance and cash flow, and growth of net tuition revenue and research activity.”
The bond rating is an important process because the rating alerts investors to the quality and stability of the entity’s bond debt, influences bond pricing and interest rates on future issues, and plays a role in investment reception. Higher rated bonds, known as investment grade bonds, are seen as safer and more stable investments. UNM’s bonds remain in the highest quadrant of investment grade rating. Although the revised rating may cause the University to pay slightly higher interest the next time it issues bonds, UNM believes this impact will be minimal.
“While a downgrade of any kind is never welcome,” said David Harris, EVP of Administration. “The stable outlook along with the opportunity to meet the Moody’s team in person afforded the University to present its case more than adequately.”