Budget Cuts Result in Moody’s Three-Step Downgrade to UA’s Credit Rating
FAIRBANKS—The credit rating committee of Moody’s Corporation decided to downgrade the credit rating of the University of Alaska from its current A1 rating to Baa1 with a negative outlook. In informing the university of the action, the committee said the downgrade is a result of the “material impairment” on the university’s financial outlook as well as the “significant execution risk,” caused by the significant reduction in state funding.
The decision drops UA’s credit by three notches, which now makes UA the second lowest rated flagship university in the nation.
“This is a direct result of the state’s budget cut and demonstrates what we have been saying—the 41 percent [$136 million] budget cut to the university continues to harm us every day,” said UA President Jim Johnsen. “Today’s news just amplifies the impact of the state’s funding cut—Moody’s downgrade harms our ability to bond or borrow money at favorable interest rates and to be viewed as financially stable.”
According to the information provided to the university, there has never been a three-point drop at one time in Moody’s institutional rating, and, more significantly, a rating of Baa1 is just two notches from being viewed as a non-investment grade debt.
If the Board of Regents votes to declare financial exigency, allowing more rapid downsizing, it would not impact today’s downgrade, Johnsen said, but it could change Moody’s outlook for UA to be more favorable.
UA currently has financial indebtedness on several of its buildings including the UAF Engineering Building, the UAA University Center, and the UAF Power Plant.
In its rationale for cutting the university budget, the governor’s Office of Management and Budget cited a 2017 Moody’s downgrade in UA’s bond rating. However, that downgrade was precipitated by the state’s poor financial condition and structural imbalance, and the state received a number of downgrades during that period.
Become an Industry Sponsor
In This Issue
The Marx Bros. Café
Jack Amon and Richard “Van” Hale opened the doors of the Marx Bros. Café on October 18, 1979; however, the two had already been partners in cuisine for some time, having created the Wednesday Night Gourmet Wine Tasting Society and Volleyball Team Which Now Meets on Sunday, a weekly evening of food and wine. It was actually the end of the weekly event that spurred the name of the restaurant: hours after its final service, Amon and Hale were hauling equipment and furnishings out of their old location and to their now-iconic building on Third Street, all while managing arguments about equipment ownership, a visit from the police, and quite a bit of wine. “If you’ve ever seen the movie ‘A Night at the Opera” starring the Marx Brothers, that’s what it was like,” Hale explains.