Moody’s Upgrades BU’s Bond Rating

BU’s bond rating raise means lower interest costs on borrowed money for projects such as the School of Law renovation and the School of Medicine’s student residence.

Moody’s Investors Service has upgraded BU’s creditworthiness, a thumbs-up that stands in conspicuous contrast to the dour outlook the firm gave higher education in general just last month.

The rating agency recently raised the University’s bond rating to A1 from A2. Moody’s credit rating system ranges from Aaa to C, with numbers added within each grade for further differentiation. The rating measures an institution’s ability to pay back borrowed money on time and in full. The upgrade will help the University to realize lower future borrowing costs.

The upgrade “reflects BU’s sustained improvement in its student market and research profile following years of strategic governance and leadership changes that have elevated BU to a more competitive position,” Moody’s wrote in a report on its decision. “The University is also beginning to generate philanthropic support more in line with its size and prominence and has launched its first-ever comprehensive fundraising campaign.”

The report also cited several developments bolstering BU’s reputation, and thus confidence in the University’s finances: President Robert A. Brown’s drive to attract academically stronger undergraduates and international students; the boom in research at the University in the past two decades; BU’s admission into the Association of American Universities; and recent budget surpluses and major gifts. It also mentioned improved governance in the past decade by the trustees, including term limits, conflict of interest policies, fewer trustee committees, and the hiring of Brown, “a president capable of quickly elevating the university’s standing.”

“This upgrade reflects the sustained improvement in the University’s market, academic, and research reputations,” says Martin Howard, BU senior vice president, CFO, and treasurer, “as well as the successful results of our comprehensive fundraising campaign to date.” (The campaign has raised more than $470 million towards its $1 billion target.) The rating action, Howard adds, “affirms the progress Boston University has made in achieving the ambitious goals set forth in our strategic plan,” which Brown ordered drafted after taking office in 2005. Howard said the University “should be gratified that our commitment to fiscal responsibility has been recognized,” and he complimented the efforts of the Treasury and Debt Management group in their coordination and preparation of materials for this comprehensive credit review process.

Moody’s rating applies to $1.1 billion of outstanding long-term debt for the University as well as additional prospective planned borrowings for the School of Law renovation and the School of Medicine’s student residence, Howard says.

The report also highlighted two continuing fiscal challenges to the University: a “high debt load and complex debt and swap portfolio requiring significant management attention.” Still, the generally positive outlook contrasts with the negative opinion that Moody’s issued in January regarding the general financial prospects of the higher education industry. The rating agency expressed concern regarding growing pressures on the standard college and university business model with respect to tuition and fee increases, the sputtering economic recovery, and the possibility of federal cuts in research and student aid funding.