Rutgers' Financial Outlook Revised From Negative To Stable

NEW BRUNSWICK, NJ — On Thursday, Moody’s affirmed its Aa3 rating for Rutgers, the state university of New Jersey, and revised its financial outlook from negative to stable. The Aa3 rating is Moody's fourth-highest rating and three notches below their best credit rating of Aaa (Triple A). However, Moody's warned that Rutgers is already operating on slim margins and could be hurt by New Jersey's economic woes, including the state's growing public pension burden.

Moody's praised university leadership, under Rutgers President Robert Barchi, for continuing to demonstrate the ability to plan and execute complex strategic change, which contributed to its improved financial outlook, the credit agency said. The Aa3 rating positively incorporates the university's large scale of operations and critical role in the state of New Jersey as the flagship and land grant university and member of the Big Ten Conference.

"The new stable outlook is based on our expectations of stabilizing operations at slightly better than break-even levels, resulting in modest operating cash flow growth," read the report. "It also incorporates our belief that the university will be able to absorb some reductions in state and federal funding, that it will limit any additional debt to current levels, and that liquidity will not deteriorate further."

The credit ratings agency found Rutgers has increased its already sizeable financial resources through fundraising, which gives the school a growing safety cushion, something that was lacking before.

Rutgers enrollment is at its highest ever, at 60,345 students in 2016. That's up from 51,762 in 2012. However, Moody's also said that Rutgers should attract more out-of-state students if it wants to keep its financial health intact. Rutgers' academic reputation continues to improve with the fall 2016 opening of the Honors College, spring 2017 launch of Rutgers Health (the clinical arm of the university and the state's academic health center) and substantial growth in research activity.

Moody's warned that things that could offset Rutgers' improved financial health include high leverage and the increasingly pressured state environment, including shifting of the pension burden from the state to the university. In addition, Rutgers' ambitious capital plan and aging facilities require significant capital investment.

But bad news for parents and students: Net tuition per student will continue to increase, Moody's predicted. That's because of the steady demand for Rutgers' programs, below inflationary increases in sticker price, and continued improvement in recruiting more students from outside of the state. And expect more activity at Rutgers' satellite campuses: With its main New Brunswick campus at capacity, making the Newark and Camden campuses as attractive to students and faculty as the main campus will impact how large the university can grow, the report found.

Moody's entire report on Rutgers' financial health is only available to subscribers.

Factors that Could Lead to a Rutgers Credit Rating Upgrade from Moody's:

• Sustained, material improvement in operating performance resulting in strengthened cash flow and debt service coverage
• Significant growth of available reserves and liquidity to cushion operations and reduce financial leverage
• Reduction of dependence on the state for financial support
• Improved ability to attract and retain students from outside of New Jersey

Factors that Could Lead to a Downgrade:

• Contraction of already slim operating margins
• Decline in cash and investments or weakening of liquidity
• Further pressure on the State of New Jersey's credit quality or material reduction of financial support
• Material additional debt without compensating growth in cash and investments

Photo: Rutgers' High Point Solutions football stadium/Date: 2 April 2012/Source: Own work/Author: Lacwal12/Wikimedia Commons