Georgetown University’s troubled financial situation worsened last week when a major investment rating agency announced that it was lowering the school’s credit rating.
Standard & Poors gave Georgetown a grade of “BBB+,” which was a drop from Georgetown’s previous rating of “A-.” An A- from Standard & Poor’s means that an institution has a “strong capacity to meet financial commitments,” while a grade of BBB+ denotes what the firm views as an “adequate capacity.”
Standard and Poor’s cited a “continuation of the university’s negative financial operations, the worsening financial condition at the Medical Center, and a substantial long-term erosion in liquidity,” as reasons for the downgrade.
Josh Stern, a Standard and Poor’s analyst said the rating reflected his company’s opinion of the credit-worthiness of the University.
“The downgrade is only one notch,” Stern said. “This is the minimum amount that you can be downgraded, so it’s relatively minor.”
The lowered credit rating would make it more expensive for Georgetown to issue new bonds in the future. Stern noted, however, that the University has no plans to borrow money.
In February of 1999, the University’s rating was downgraded from A+ to A-, mainly due to the operating losses of Georgetown University Hospital. Those losses led the University to sell the facility to MedStar to cut expenses.
Georgetown retained the Medical Center for research purposes, which continues to act as a drain on the University’s finances.
“Even after selling the hospital they continued to incur financial losses, and the financial resources of the University have diminished, primarily their endowment,” Stern said.
Amy DeMaria, Director of Communications for the Georgetown University Medical Center, said the University has no plans to sell the Medical Center, despite a projected 2004 fiscal year deficit of approximately $27 million.
Michael Hodge, Director of the D.C. Revenue Bond Program said the lower Standard & Poor’s rating does not affect the business relationship between Georgetown and his office, which issues the bonds. The District acts as a broker since it alone can issue tax-exempt bonds.
Hodge emphasized that Standard & Poor’s is not the only ratings agency.
“Other ratings agencies may not have come to that conclusion, so you might find the others have not downgraded it at all,” he said.
Indeed, Moody’s Investors Services, another ratings agency, rated Georgetown with a grade of A3 (on a rating scale running from a high of Aaa to a low of C). While Moody’s outlook for Georgetown remains negative, the University was recently removed from a watch list for a downgrade.
Susan Fitzgerald, a Moody’s analyst explained, “An A3 rating is very solidly into the investment-grade scale. We think there is little likelihood that the University would ever default on its debts.”
Other D.C. schools, however, have a better credit rating than Georgetown. American University, Catholic University, Howard University and George Washington University all received higher credit ratings from both agencies.
“Standard & Poor’s action is disappointing, but not totally unexpected. Their decision is based on a historical view of Georgetown’s financial position,” Julie Green Bataille, Georgetown’s Assistant Vice President for Communications, said.
“The bottom line is that there is no operational or financial impact on Georgetown as a result Standard and Poor’s decision to lower our bond rating,” she added. “We don’t have any plans to use bonds in the near future.”
