Moody’s maintains Kean University’s negative outlook

By Keanu Austin

Moody’s Investors Service, a bond credit rating agency, is once again maintaining a negative outlook for Kean University due to several challenges the university has yet to overcome: continued declines in enrollment, an expectation of narrower operating performance in this fiscal year and pressure on net tuition revenue, according to a press release from the agency.

Kean has recorded two years of significant declines in enrollment, states the January press release from Moody’s.

The press release also states that Kean’s Fall 2013 full-time equivalent enrollment of 10,938 is down 10.9 percent from its recent high enrollment of 12,279 in fall 2011.

At a Faculty Senate meeting held on Feb. 12, enrollment issues were on the agenda and members acknowledged the importance of Kean’s enrollment issues and a need to work towards a solution.

“We have not been doing as well as you might expect with respect to enrollment,” said Faculty Senate Chairperson Patrick Ippolito to the Senate during the meeting, “and that’s probably an 
understatement.”

Ippolito suggested dedicating an entire meeting to discussing the problem, with focus not only on enrollment but also on retention.

“It’s really two-fold. It’s not simply bringing students in,” Ippolito said. “It’s keeping them.”

In regards to Kean’s operating performance, Moody’s affirmed Kean’s A2 bond rating for a healthy financial operating performance, but the rating agency also noted a 2.2 percent dip in operative revenue from the 2013 fiscal year, including a 6.9 percent decline in tuition and auxiliary revenues.

Also, Moody’s found that limited financial support from the state has required Kean to implement ongoing tuition increases and to finance its capital projects with internal resources and debt. Moody’s documented in its press release that the university has $346 million of rated debt. However, the rating agency considers it a strength that the university’s debt is all at a fixed rate with no derivative agreements.

A derivative is a financial contract between two or more parties that derives its value from an asset, like stocks or bonds. Derivatives have many uses, such as turning a profit for investors, but they are also criticized as risky contracts that could lose investors large amounts of money.

The university could receive a higher rating, Moody’s states, should the institution experience substantial growth in financial resources related to debt and operations, an increase in net tuition per student and strong operating cash flow margins to support debt service.

On the other hand, a decline in enrollment without proportional adjustment to expenses, continued decreases in operating performance, borrowing without substantial growth of financial resources and reductions in financial resources could result in Kean having its rating lowered.


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