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Moody’s Upgrades BU’s Bond Rating

Credit judge applauds management and reputation

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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.”

Boston University School of Medicine BUSM MED student residence, 815 Albany street

The School of Medicine student residence on Albany Street on the Medical Campus. Photo by Cydney Scott

“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.

6 Comments
Rich Barlow

Rich Barlow can be reached at barlowr@bu.edu.

6 Comments on Moody’s Upgrades BU’s Bond Rating

  • Costa Narmandaleg on 02.25.2013 at 9:39 am

    Great! Does this put us on a par with Goldman Sachs and AIG? “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 “higher education industry.” Thank goodness we got out of the business of teaching and research.

    • Sigh on 02.25.2013 at 2:20 pm

      If you can’t come to terms with the fact that privatized higher education is an industry and as a result criticize what is, by all accounts, a signal that BU is doing a number of things right in an “industry” that is doing a lot of things wrong, then I’d say you’re a little out of touch with the world.

      • MoonBatman on 02.25.2013 at 8:00 pm

        If you think nothing is wrong with the business model, and that Moody’s would be the one to tell you if there were, then you, sir or madam, are the one out of touch with reality. To quote a bumper sticker than became popular the last time Moody’s et al got it wrong, “if you’re not outraged, you’re not paying attention.”

        • SMG Student on 02.26.2013 at 8:41 am

          Grading an education institution is very different then the model used to grade a synthetic CDO. Far simpler and far easier. Moody’s was just saying that BU’s enhanced reputation gives it a better ability to raise money to pay its debt AND some of the negative aspects such as low alumni donation rate are coming up to normal levels.

          All they are saying is there is a low risk in giving BU money over the long term, they will likely be able to pay it back. When you consider that BU’s land holdings are well over 1.1 billion it certainly makes sense.

          • Sigh on 02.26.2013 at 10:30 am

            SMG Student nails it ;)

    • SMG Student on 02.26.2013 at 12:08 am

      Industry is just the term used to describe a similar set of companies. There is a not-for profit industry. You are just associated your own biases with the word.

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