NEW YORK Feb 25 Many U.S. universities could
face a volatile year in terms of financing in 2013, with a major
credit ratings agency saying it expects to issue more ratings
changes in the not-for-profit higher education sector this year.
Standard & Poor's Ratings Services, in a report on Monday,
described a sector that was facing both risks and opportunities
as institutions strive to reassess programs, delivery systems,
cost structures and revenue sources.
Changes to the debt ratings will be evenly split between
positive and negative, with the negative concentrated in
lower-rated institutions and the positive concentrated in
higher-rated universities, which have established demand, more
revenue diversity, fundraising experience and strong balance
This could mean that institutions with weaker credit
profiles fall further behind while those in already strong
positions do even better, the agency said.
"While we expect stable credit quality for a majority of our
rated higher education institutions in 2013,the range of risks
facing the sector could lead to uneven credit performance," the
Money managers who buy debt issued by universities use
credit ratings to make decisions about how risky the debt is and
whether or not to buy it. A lower rating typically means higher
Higher education has been a stable sector when it comes to
debt. Less than 10 percent of public and private universities
rated by Standard & Poor's carry a "non-stable" outlook. About
5.5 percent have positive outlooks and 4 percent are negative.
However, that could start to shift in 2013. After an initial
round of cost-cutting after the recent recession, budgets have
been strained by flat to declining enrollments at some
universities and falling tuition revenue, Standard & Poor's
On the revenue side, Standard & Poor's said it will closely
follow tuition trends, grants and research funding, endowment
spending, state operating appropriation trends, and fundraising
- the biggest revenue sources for most institutions.
"Management must grapple with decisions regarding tuition
rate increases, how to manage the combination of financial-aid
strategies, new enrollment, and marketing initiatives.
Long-term, these decisions could change the mission or culture
of an institution," the report said.
Balance sheets across the sector could see more weakening as
universities push delayed capital investment projects as they
try to stay competitive. "In our view, this means the sector
will likely take on additional balance sheet risk during the
next several years," the report said.