Longtime Pennsylvania Liberal Arts College’s Rating Cut to Brink of Junk

15/02/2024

(Bloomberg) — Allegheny College, a small private college in western Pennsylvania, had its credit rating lowered to the brink of junk as it grapples with lower student enrollment — a growing trend for small colleges around the country.

Moody’s Investors Service downgraded the college’s issuer rating one notch to Baa3, citing “weak financial operations” and a declining pool of applicants. The college’s revenue fell to about $80 million for the 2023 fiscal year — a roughly 7% drop from four years ago — according to its annual reports. The school has more than $50 million of outstanding debt and is wrestling with operating deficits.

“Deeply unbalanced financial operations and strained student demand provide for escalating credit challenges,” Christopher Collins, lead analyst at Moody’s, said in the report. “With weak demographics and elevated student market competition, both pricing power and revenue growth will remain suppressed.”

One of the oldest private liberal arts colleges in the country, Allegheny has seen a dramatic decline in enrollment in the past decade. From 2012 through 2022, it’s student population fell 37% to 1,353 pupils, according to the National Center for Education Statistics.

“While we are disappointed in Moody’s decision to downgrade the Allegheny College credit rating, it is consistent with their outlook of the higher education sector across the country,” the school said in an emailed statement. “There are many measurements that an institution reviews to assess its strength, and because of Allegheny College’s financial stability, excellent academic program, strong alumni community, and recent major gifts, we remain optimistic about Allegheny College’s future.”

longtime pennsylvania liberal arts college’s rating cut to brink of junk

Small Private School Enrollment Is Dwindling | Total number of full-time and part-time students at Allegheny College

Allegheny College isn’t the only one facing trouble. A shift in demographics and a declining number of high-school graduates is limiting demand and putting pressure on college finances.

The Covid-19 pandemic led young adults to pause or delay their studies. While federal relief helped temporarily offset the profit losses from a diminishing student population, the aid will expire next year and expose schools to even more challenges. Full-time undergraduate enrollment has been dropping for more than a decade; between 2010 and 2021, it fell 17% to 9.5 million students.

That drop in students, combined with soaring inflation, the pandemic delays and increased spending on school facilities such as dorms and stadiums, have led to revenue challenges for small institutions.

Moody’s said its outlook for Allegheny remains negative. The key to improving its credit rating is sustaining growth in net tuition revenue, continuing philanthropic initiatives and lifting student demand, Collins wrote.

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