News Column

Moody's downgrades Alabama State's credit rating

July 4, 2014

By Josh Moon, Montgomery Advertiser, Ala.



July 04--Alabama State University's credit rating has been downgraded again.

Moody's Investors Service implemented the downgrade -- the third for ASU in the past 18 months -- due to the university's "weakening financial condition," a statement from Moody's said.

Moody's also cited the university's "weak governance" and noted the recent decision by the Southern Association of Colleges and Schools to place ASU on warning, meaning the university is at some risk of losing accreditation.

Accrediting agency puts ASU on warning for 6 violations

"Ongoing weak operating performance required a draw on reserves to cover debt service in 2014, and this is expected to continue through at least 2015, if not longer, resulting in weakening liquidity," the release from Moody's states. "A history of weak governance and expense control reduces the prospects that the university will be able to rapidly and strategically restore operating equilibrium."

Moody's downgraded ASU's tuition and fee bond rating from Baa1 to Ba1 and downgraded the school's Series 2005 lease revenue bonds from Baa2 to Ba2. It gave ASU a negative outlook.

ASU officials said they would review the notice from Moody's and comment following the holiday weekend. The university is in the midst of a transition at the top of its financial department, with Freddie Gallot, who retired last month, being replaced by Wanda Smith as vice president of business and finance. Smith was not immediately available for comment.

The statement from Moody's highlights several weaknesses it said led to the downgrade and potential future financial issues. Those included that ASU is "extremely leveraged, with $235 million in direct debt," and declining cash and investments. All of that led the university to tap reserve funds to pay the debt service.

Moody's also said ASU's management has been unable or unwilling to address "a growing structural deficit," which signifies weak controls and the likelihood of future deterioration. It also noted the university's "significant governance and management challenges," including an ongoing forensic audit, a new president and SACS issues.

In ASU's favor, Moody's believes, is that Gov. Robert Bentley has "become more involved" and now attends board meetings regularly, strengthening the university's relationship with the state. "Appropriations provided 35 percent of operating revenue in fiscal 2013," Moody's said.

Bentley's presence at ASU hasn't exactly been welcomed with open arms. The governor ordered a forensic audit of ASU following allegations from former President Joseph Silver in November 2013. The release of a preliminary audit report in October put Bentley and ASU officials at odds and resulted in a contentious board meeting.

Currently, there are two grand jury investigations into potential fraud at ASU. To date, no charges have been brought against anyone at ASU.

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(c)2014 the Montgomery Advertiser (Montgomery, Ala.)

Visit the Montgomery Advertiser (Montgomery, Ala.) at www.montgomeryadvertiser.com

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Source: Montgomery Advertiser (AL)


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