NEW YORK — Moody’s Investors Service has assigned an A2 rating to Fairmont State University’s revenue refunding bonds, issued by the university board of governors.
While Fairmont State has “approximately $63.5 million in total debt,” and experienced a decline in enrollment for the past five years, according to Moody’s, the credit rating service reports the university’s financial outlook is stable.
“The assignment of the A2 rating incorporates Fairmont State University’s good strategic positioning and solid financial position, including sound liquidity and healthy operating performance,” states the rating action from Moody’s. “The university maintains a regionally important role within the state and although full-time equivalent enrollment has declined over the last five years, FSU maintained stable enrollment in fall 2020 despite the effects of the pandemic.”
Moody’s analysts said the university’s has a “solid financial position” due in part to “strong operating cash flow margins and healthy liquidity.”
Moody’s also cited an increase in state funding as another reason for the university’s sound fiscal picture as that state funding will remain steady for fiscal 2021.
Analysts tempered their remarks with the fact that Fairmont State is in a “highly competitive student market,” and at the same time, is feeling the collateral damage from a decline in the number of high school graduates in West Virginia.
“Additionally, the university’s size and scale of operations is smaller compared to A2-rated public university peers. While the university’s strong liquidity provides very good financial flexibility, absolute wealth remains lower than similarly rated peers,” the report states.
According to Moody’s, a significant infusion or cash and investments, increased donor support or continued “strong” operating performance could lead to a rating upgrade along with sustained annual revenue growth and “steady gains in net tuition revenue.”
Moody’s officials also warned about aspects that could lead to a rating downgrade, such as an increase in debt that’s large enough to offset revenue growth, diminshed operating performance or declines in state funding.
Analysts also addressed the financial impacts of fully separating Fairmont State and Pierpont Community and Technical College as the university’s bonds are currently being paid down, in part, by additional fees charged to PCTC students.
“However, with the recent separation agreement that will lead PCTC to locate to its own campus, the 2012A & 2012B bonds will be refinanced by FSU’s proposed Series 2021A bonds, which will be on parity with FSU’s Series 2015 A bonds,” states the report.
The separation agreement between PCTC and Fairmont State calls for the college to “make an annual payment to FSU of $1.3 million in fiscal 2022 and $1.5 million from fiscal 2023 through fiscal 2032, with these funds also included in FSU’s pledged revenues.”
Fairmont State President Mirta Martin said she is grateful for the Moody’s rating.
“At a time when other schools across the country are struggling under decreased state budgets and the impact of COVID-19, Fairmont State University continues to grow stronger and stronger, “Martin said. “And that is a direct reflection of our extraordinary faculty, staff, students, our Board of Governors and executive leadership team.”
John Moody devised his system of rating securities in 1909 in order to inform investors about the credit-worthiness of companies, educational institutions and government entities.