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The Mass Media

The Mass Media

The Mass Media

UMass System Receives Positive Credit Ratings From Three Bond Agencies

In the month of January, three of the biggest and most influential rating agencies in the country gave the University of Massachusetts system positive feedback on their management of finances and their ability to handle the situation after having faced budget cuts for the past years.

Overall, the bond rating agencies Moody’s Investors Service, Fitch Ratings, and Standard & Poor’s Global Ratings have evaluated the universities, and now consider it stable in their expenses and revenue. In detail, the whole UMass system has received an Aa2 rating from Moody’s (Aaa being the highest), an AA rating from Fitch (AAA being the highest), and an AA- from S&P (AAA being the highest). This assessment is a positive reflection of the current situation, but also implies a optimistic outlook into the university’s financial future.

In recent years, the UMass system’s leadership has received large amounts of backlash after cutting budgets throughout the system, downsizing faculty and staff, and raising tuition at all locations. However, once these new rating were published, it appeared as if the administration had taken the necessary actions to save the UMass system from increasing their deficit. In an official statement, the UMass system President Martin Meehan showed signs of relief regarding these rating, and expressed his gratitude at being able “to see UMass’ strong financial management and strategic vision recognized by the credit rating agencies.”

In the report published by Moody’s, the agency argues that the reasoning behind their positive assessment of the UMass system is that, based on the school’s “large scale of operations and role as a leading provider of four-year public higher education in the state, recent solid operating and capital support from the Commonwealth of Massachusetts, and growing net tuition revenue.” S&P also included most of these arguments in order to justify their positive rating of the UMass system, stating that “we assessed the university’s enterprise profile as very strong, characterized by growing enrollment, solid demand, and sound management and governance oversight, with comprehensive long-term strategic plans.” Corresponding to those statements, Fitch Ratings explained in a press release that their AA rating stems from the “university’s historically breakeven-to-positive operations, growth in student-generated revenues driven by stable demand trends, and improving debt manageability.”

However, while all three bond rating agencies provided a relatively positive evaluation, they also warned the school of possible future problems or challenges that could worsen the Umass system’s financial profile in the next upcoming years. One problem is the large amount of debt the university has, paired with slowly increasing revenue. Therefore, it will become necessary for the university to “grow operating cash flow to provide coverage of rising debt service, narrow liquidity and limited historical philanthropic activity,” as Moody’s report points out. Additionally, Fitch Ratings warned that even though the financial support from the Commonwealth has been strong in the past, the level of support could fluctuate in the future, and thus affect the Umass system’s financial situation and profile negatively.

S&P however pointed out that it is difficult to predict the school’s financial future right now, and that it is still unclear whether a “downside scenario” or an “upside scenario” will become reality. The former implies a large increase of additional debt and significantly slimmer operating margins, whereas the latter includes “material increase in available resources, solidly positive operating performance, enhanced fundraising results, and continued growth in demand.”