Lasell College, MA Revenue Bond Rating And Issuer Credit Rating Outlook Revised To Negative On Declining Demand Metrics

Stocks and Financial Services Press Releases Friday June 29, 2018 10:45
SAN FRANCISCO--29 Jun--S&P Global Ratings

SAN FRANCISCO (S&P Global Ratings) June 28, 2018--S&P Global Ratings revised its outlook to negative from stable and affirmed its 'BBB-' rating on Massachusetts Development Finance Agency's series 2011 revenue bonds issued for Lasell College, as well as its 'BBB-' issuer credit rating on the college.

"The negative outlook revision reflects our opinion of the deterioration of Lasell College's demand metrics, including selectivity, matriculation, and retention ratios, in fall 2017, and the full-accrual operating deficits expected by management for fiscals 2018 and 2019," said S&P Global Ratings credit analyst Ying Huang.

Historically, in our view, Lasell College's consistent break-even to positive operating performance has been an important factor that offsets its relatively weak demand profile and balance sheet ratios, and supports the current rating level. While we understand the college is working on leveraging its recent capital investments to stabilize the enrollment trend and increase its auxiliary revenues, we believe further deterioration in the demand profile or sustained operating deficits beyond fiscal 2018 could pressure the ratings. We assessed Lasell's enterprise profile as adequate, characterized by a stable management team, enrollment declines in the last couple of years, and a limited demand profile with weak selectivity and matriculation rates for the ratings.

We assessed Lasell's financial profile as adequate, with stable operating performance that is break even to slightly positive (although a modest operating deficit is projected for fiscal 2018 and budgeted for fiscal 2019), and a relatively high discount rate and student dependence. Available resources relative to operations and debt are weak for the rating category. The weak balance sheet is further exacerbated by a high degree of contingent liabilities, which pose liquidity risk. The college has sufficient headroom relative to most of its covenants, thus partially mitigating the risk of acceleration. However, we understand that the college exceeded the limit set by the debt covenant on capital expenditure (due to one-time capital expenses relating to its new science and technology center) in fiscal 2017, but was able to secure a waiver from the bond purchaser. Therefore, we don't consider it as a material credit event. Combined, these credit factors lead us to assign an indicative stand-alone credit profile of 'bbb-', and a final rating of 'BBB-'.

We would consider a lower rating during the outlook period if enrollment continues to decline, resulting in full-accrual deficits beyond fiscal 2018, if available resources decrease from the current levels such that they are no longer consistent with the current ratings, or if the college were to issue additional debt without commensurate growth in available resources. We could also consider lowering the ratings if future calculations show deterioration to levels close to the covenant.

A return to stable outlook could occur during the outlook period if the college stabilizes its enrollment trend and strengthens the demand metrics, posts consistent break-even to positive operating results, improves its balance sheet, and stays in compliance with its debt covenants.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.


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