UM System achieves high credit rating but drops to ‘negative’ in financial outlook

The University of Missouri System is hanging on to its good credit rating, but it’s been warned of the potential for a shaky future.

Moody’s Investors Service has affirmed the UM System’s Aa1 rating on about $1.6 billion in debt. But it also revised the four-campus system’s rating outlook down from stable to negative.

The change “reflects expected thinner operating performance for FY 2017 through FY 2019 as the system takes steps to adjust to enrollment declines and reduced state funding,” a summary of the Moody’s report says. The evaluation includes all four campuses in the UM System: Kansas City, Columbia, St. Louis and Rolla.

The Aa1 rating retained by the system is the second-highest rating handed out by Moody’s, which ranks the creditworthiness of borrowers. The UM System’s rating indicates good credit standing for the university should it choose to take on further debt.

“The system’s scope of operations, $3.2 billion of revenue, and absolute wealth, $3.6 billion in total cash and investments, provide it with material flexibility to cope with multi-year budgetary challenges,” the Moody’s report says. It also says the university has sound fundraising, manageable total debt levels and future borrowing plans that are “moderate.”

The last time the university took on debt through bonds, according to Moody’s, was twice in 2014, totalling $500 million.

But the negative outlook, according to David Jacobson, a Moody’s spokesman, indicates circumstances — including enrollment declines on the Columbia campus — that make it possible the university system’s overall rating could slip within a year or two.

A drop in enrollment, particularly at MU, was partly blamed for the elimination of 474 administration, faculty and staff positions earlier this month. In addition, there will be an anticipated 8 percent reduction in state appropriations — amounting to $35.9 million​ — in the 2018 fiscal year.

Revenue from tuition is expected to drop by $11 million.

The Moody’s report mentions several other reasons that led to a negative outlook for the system.

“Significant turnover in senior management teams across the system will take time to jell,” the report says.

Mun Choi started his duties as system president in March, replacing Tim Wolf who had resigned in 2015 after racially charged student protests on the Columbia campus. In May, Alexander Cartwright, provost at the State University of New York, was hired as Mizzou’s new chancellor.

That position had been filled by an interim chancellor since Noveber 2015 when former chancellor R. Bowen Lofin stepped away from the job during the Columbia campus protests.