Another historically black university in Georgia faces weak finances, negative credit rating from Moody’s

By David Pendered

Another historically black university in Georgia has been dinged by a credit rating agency that reported the school had just 20 days of cash on hand on June 30, 2013 and now faces a $2 million shortfall.

Fort Valley State University received a negative outlook from Moody’s Investors Services in a rating action dated Dec. 18. The rating came despite Fort Valley’s affiliation with the University System of Georgia, a relation that has helped Fort Valley in the past.

In July 2012, the affiliation helped Fort Valley achieve an investment grade rating of A3 on bonds sold to finance student housing. In December 2013, Moody’s affirmed its previous decision to lower the bond rating from investment grade to Baa1, a medium investment grade with some speculative risk.

Among the challenges: Declining enrollment and an “extremely weak balance sheet and liquidity,” according to the rating.

Fort Valley’s financial struggles continue a trend of dim financial outlooks for the nation’s higher education system overall, with particular concerns for the nation’s historically black colleges and universities. HBCU’s tend to have less wealth than other schools to tide over a faltering economy.

A year ago, Moody’s downgraded Morehouse College’s bond rating and assigned a negative outlook, citing the school’s declining enrollment and softening financial situation.

Fort Valley has also contended with, and overcome, a warning issued in 2011 by the Southern Association of Colleges and Schools. SACS issued the warning based on faculty credentials, handling of federally funded student aid, and fiscal procedures. SACS rescinded the warning in late 2012.

To help continue the turn-around, Fort Valley advertised last autumn for a chief academic officer. According to the ad, Fort Valley was seeking a provost and vice president for academic affairs to oversee all academic programs and policies of the university.

The financial challenges have only worsened.

Moody’s rating action in July 2012 seemed hopeful, even as it warned of a possible downgrade later in the year. It was based on Moody’s apparent expectations of the Board of Regent’s involvement:

• “The A3 rating reflects the Board of Regent’s (BOR) broad lease revenue pledge, strategic importance of the bonded project to Fort Valley State University (FVSU), and the BOR’s recent intervention at FVSU, which resulted in a new Vice President of Finance and the engagement of a financial aid consultant.”

What a difference 18 months can make. Here’s the current situation as outlined by Moody’s in the most recent rating action:

• “Weak market position as evidenced by an 11.5 percent enrollment decline in fall 2013 following a 9.2 percent decline in fall 2012, leaving the university with 2,986 full-time equivalent students in fall 2013. [The schools website states  enrollment is, “nearly 4,500 active students.”]
• “Extremely levered operations with debt to operating revenue of a high 1.2 times in [fiscal year] 2013 and with total cash and investments providing a near zero cushion of just 0.05 times to debt. The high operating leverage is unlikely to improve in the near term as FVSU faces revenue growth challenges such as state appropriation cuts and enrollment declines.
• “Minimal resources with $3.8 million of total cash and investments and monthly liquidity providing just 20 day’s cash on hand as of June 30, 2013.
• “Deteriorating operating performance, with a 9.4 percent deficit in FY 2013 as compared to near break-even operating performance in FY 2009. FY 2014 is facing
• operating challenges with fall 2013 enrollment below budget resulting in a $2 million revenue shortfall.
• “Challenging state funding environment with fluctuating state appropriations and cuts made to tuition assistance from the state.
• “Board’s rental payments are annually renewable with no legal obligation to renew [referring to the Board of Regent’s decisions to lease space on campus].”