Monday, October 31, 2016

Moody’s downgrades FAMU dormitory bond rating, cites Mangum’s enrollment decline

The millions FAMU lost in tuition and fees due to declining enrollment under former President Elmira Mangum has now played a big role in hurting the school’s dormitory bond rating.

Last week, a press release by Moody’s Investors Service announced the company’s decision to downgrade to “Baa1” FAMU’s $38 million Series 2012A Dormitory Revenue Bonds issued by the Division of Bond Finance on behalf of the Florida Board of Governors. It reported that the “outlook is negative.”

Mangum began her presidency on April 1, 2014. Eight months later, on December 1, 2014, Moody’s gave FAMU an “A3” rating, which is one level higher than the new 2016 rating of “Baa1.”

“The downgrade is based on a material deterioration of the university’s fiscal position with prolonged enrollment declines and limited revenue raising ability,” the 2016 press release stated. “The housing system has not met projected revenue growth and debt service coverage from pledged revenues remains thin.”

Under the “Rating Outlook” section of the document, Moody’s explained that: “The negative outlook reflects significant headwinds facing FAMU to stabilize enrollment, balance operations, and improve debt service coverage on the housing system bonds.”

Moody’s had warned back in 2014 that continued tuition losses from enrollment declines could negatively affect FAMU’s rating. Its press release from that year stated that “potential drivers of downward rating pressure include a decline in student demand or net tuition revenue.”

It added that two of FAMU’s challenges were that “headcount enrollment declined 23% from fall 2010 to fall 2014, now standing at 10,224 headcount students” and that “operating performance has deteriorated due to the combination of tuition revenue declines and expense growth, with a 5.8% increase in expenses in FY 2014 propelled largely by payroll growth.”

But despite those warnings from Moody’s, Mangum didn’t stop the enrollment decline. FAMU’s enrollment in Fall 2015 dropped to 9,920 (down from 10,233 in Fall 2014) under Mangum. That loss of 313 students, with the rest of the student losses from that year, cost FAMU $9M+ in tuition and fees.

In a section of its 2016 announcement entitled “Factors that Could Lead to an Upgrade” Moody’s said that “materially improved university-wide cash flow performance leading to sustained growth in flexible reserves” and “increased enrollment with consistently strengthened debt service coverage for the housing bonds” could improve the outlook for FAMU.

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