Bond downgrade doesn't faze Allegheny leadership

Feb. 22—One of the nation's leading credit rating companies downgraded Allegheny College's bond rating last week, but that isn't raising a concern for college officials.

Moody's Investors Service lowered its rating of Allegheny's bonds from Baa2 to Baa3, or just above what is commonly known as non-investment grade or "junk."

In issuing its downgrade, Moody's said "the outlook remains negative" and the move "was largely driven by Moody's expectations of continued weak financial operations as the college grapples with elevated student market challenges. Double-digit operating deficits are likely through fiscal 2024 and potentially beyond, leading to further declines in liquidity and erosion to the financial cushion."

Moody's rates bonds issued by government agencies, corporations and other entities. Bonds are issued by an entity when it wants to raise money.

"Regrettably, that outlook seems consistent with higher education nationally," Ron Cole told The Meadville Tribune.

But the change has no bearing on Allegheny's current budget or finances in general, according to the college's president.

"The rating would only affect us we were to go out for new debt through a bond issuance, and we have no plans to do that," he said.

Another bond rating service, S&P Global (formerly Standard and Poor's), has a different — and stronger — take on the college's financial situation.

"We recently were rated by Standard and Poor's with an A- minus rating with a stable outlook citing our strong financial balance sheet," Cole said. "We carry low debt and have an endowment."

S&P Global's 'A' rating means the issuer "is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitments on the obligation is still strong."

Allegheny had total outstanding debt of $50.5 million at June 30, 2023, its fiscal year end. Bloomberg reported last week that the college"s revenue fell to about $80 million for the 2023 fiscal year — a roughly 7 percent drop from four years ago, according to the college's annual reports. Allegheny's total endowment was $264 million.

Moody's report on its rating change did note Allegheny's "still significant financial resources despite the recent years of declines."

The college's total cash and investments of $289 million covered its total adjusted debt by more than five times and its operating expenses by more than three times, respectively, in fiscal 2023.

Moody's report said weak demographics and increased competition for students will suppress revenue growth for Allegheny.

The report cites the college's solid philanthropy as key to credit quality, providing financial support for Allegheny in both its operations and its need for capital.

According to Cole, the college is developing a strategic pathway for its future to increase its enrollment from its current 1,353 students. That strategic plan will be released later this year, he said.

In the years from 2010 through 2020, Allegheny's total enrollment ran between 1,800 and 2,100 students. Bloomberg reported that the student population fell 37 percent from 2012 through 2022, according to the National Center for Education Statistics.

"We're investing in initiatives in our current strengths as well as innovating so we can continue to attract quality students to Allegheny," Cole said.

Though a liberal arts college, Allegheny added four majors this year to attract students — programs in software engineering, public humanities, data science and industrial design.

While not citing numbers, Cole said applications and deposits for the 2024-25 academic year "are up compared to where we've been over the last four or five years. We're trending positively this year."

Cole didn't have a target enrollment figure, but said Allegheny plans to raise its total enrollment during the next few years.

"I'm absolutely confident we're going to rebuild our enrollment," the president said. "Rebuilding and stabilizing, that's key."

Moody's said while its outlook for Allegheny, one of the oldest private liberal arts colleges in the U.S., remains negative, the key to improving the college's credit rating is sustaining growth in net tuition revenue, continuing philanthropic initiatives and lifting student demand.

While Allegheny's endowment was listed at $264 million, the Pittsburgh Post-Gazette reported last week that total was stagnant compared to 2022, inching lower by 0.1 percent.

Of 10 regional institutions included in a report released by the National Association of College and University Business Officers and the Commonfund Institute, six saw the market value of their endowments climb between 2022 and 2023.

Those institutions are the Foundation for Indiana University of Pennsylvania (up 7.1 percent), Clarion University Foundation at PennWest Clarion (up 7 percent), Duquesne University (up 5.4 percent), Penn State University (up 3.8 percent), Westminster College (up 1 percent), and Carnegie Mellon University (up 0.8 percent), the report said.

The other endowments that decreased were Robert Morris University (4 percent), the West Virginia University Foundation (3.6 percent), and the University of Pittsburgh's Oakland campus (0.7 percent).

Pitt has the largest endowment of regional schools. In 2023, its endowment was nearly $5.49 billion — the 29th largest in the country. Allegheny College's endowment ranked 317, according to the Post-Gazette report.

Keith Gushard can be reached at (814) 724-6370 or by email at kgushard@meadvilletribune.com.