News

Augsburg Credit Downgraded to “Negative Outlook”

Danny Reinan, staff writer

Moody’s Investor Service, a corporation that conducts international research on bonds and ranks the risk levels of borrowers, has downgraded Augsburg University’s bond rating from Baa3, a medium-grade, stable rating, to Ba1, a low-grade, negative rating. This ranking sits roughly in the middle of Moody’s overall grading scale, which ranges from Aaa to C, and brands Augsburg’s status as “speculative” and “subject to substantial credit risk.” The corporation has previously viewed Augsburg as having a negative outlook, as they were given a negative bond rating in 2016 before having that rating revised to stable in 2018. 

 

The reason for the negative outlook comes primarily from the $48 million of debt issued to Augsburg by the Minnesota Higher Education Facilities Authority. The opening of new facilities on Augsburg’s campus has made paying off this debt difficult, and researchers at Moody’s were not confident in Augsburg’s ability to manage the debt in the future. Augsburg’s enrollment of graduate students has also been steadily decreasing. The volatility inherent to universities makes it difficult to predict what sorts of financial changes could occur moving forward. Because universities are so dependent on tuition from students, any sort of decrease in enrollment can have massive ramifications on an institution.

 

Moody’s report on Augsburg’s lowered outlook did acknowledge some of the potential areas of growth in its future. The report took note of Augsburg’s niche presence as a Lutheran University with “notable and expanding programs.” Augsburg’s well-established niche was also named as a major positive factor when Augsburg’s financial status was revised from negative to stable in 2018. One of the most favorable aspects of Augsburg’s recent financial position was the growth in enrollment in 2019 when Augsburg welcomed the largest incoming class in its history. The research from Moody’s suggests that, as long as Augsburg’s incoming classes continue to grow, there will be significant positive benefits that will offset some of Augsburg’s struggles with debt management.

 

Gita Sitaramiah, the Director of Public Relations at Augsburg, is certain that the lowered rating from Moody’s will not pose any significant financial risk. “It’s important to know that with this year’s strong enrollment, Augsburg is on track to meet this year’s budget,” she said. “Assuming we achieve that, the primary impact of the Moody’s credit rating is that the interest rate on some financing of existing debt held with one bank may rise slightly, and we are planning with that in mind.” Although the rating from Moody’s Investor Service may indicate a degree of uncertainty in Augsburg’s future, the administration says they are determined to see to it that Augsburg carries forward its positive growths from the past year while managing its debts effectively.

President Paul Pribbenow is also confident in Augsburg’s capability to maintain stability. In an email sent to staff and faculty, Pribbenow wrote: “though I am disappointed by Moody’s action – and I realize that it may cause concerns on campus – I want to assure you that the work we are doing as a community to build financial strength is robust and encouraging.” He went on to address some of the successes that Augsburg has had this year, including the large freshman class, the debt restructuring the Board of Regents approved and the repositioning of the chief financial officer role, though that role remains empty.

“Moving forward, where we need to focus on now is not this rating, but instead on building our positive momentum,” said Pribbenow.

 

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