April 1, 2012

Moody’s Improves Outlook on Cornell’s Financial Situation

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A major credit rating agency revised its outlook of the University’s financial situation on Sunday from “negative” to “stable.” The company also affirmed its “Aa1” rating of Cornell’s long-term bonds.

In a press release, Moody’s Investors Service said the decision “reflects a rebound in philanthropy, ongoing focus on expense containment and improved operating performance … and no additional direct debt anticipated in the next two years.”

The credit ratings issued by institutions such as Moody’s have a significant impact on the University’s financial outlook because the ratings serve as a benchmark to buyers to determine the risk of debt. The lower the rating, the higher the interest rate on the loan, because the risk is considered greater and incurs a higher cost to the University.

In 2010, Moody’s changed its assessment of the University’s debt position from stable to negative, but maintained the Aa1 rating. The decision came after Cornell sold $285 million in debt to finance the construction of a new medical research facility at Weill Cornell Medical College, The Sun reported at the time.

Moody’s said the Aa1 rating “reflects the university’s very strong market position as an Ivy League private university … with robust student demand, research activity and fundraising.”

In the announcement, Moody’s also listed the strengths and challenges of Cornell’s credit rating. The University’s ability to draw a strong, large applicant pool, combined with a diversified revenue base, large research budget and “strong management and governance” were among its strengths.

The CornellNYC Tech campus was listed as one of the University’s challenges to its creditworthiness. Though the company acknowledged that a $350 million gift from the Atlantic Philanthropies and a $100 million grant from New York City have already been designated for Phase I of the project, the remaining “funding sources and full scope of future phases are uncertain.”

However, the firm said that a lack of additional anticipated debt for the project helped improve the University’s financial outlook.

“We expect that Phase I of the NYC Tech campus on Roosevelt Island will be fully funded via philanthropy and a grant from NYC with no expected impact on the university’s cash balances,” the ratings agency said.

Cornell currently has $1.9 billion of direct debt outstanding, a figure that has tripled since 2005, according to Moody’s.

The firm, along with Standard & Poor’s and Fitch Group, is considering one of the Big Three credit rating agencies, according to CNBC. The companies rate debt securities, such as bonds, to help potential investors gauge their creditworthiness. Moody’s rates bonds from Aaa to C.

Original Author: David Marten