National credit rating agency downgrades University of Alaska’s credit rating by three notches

Moody’s Investors Service has downgraded the credit rating for the University of Alaska. The university’s previous rating of A1 has been dropped three notches to BAA1. The lower rating means it will be more expensive for the university to borrow money for various projects.

In a report from Moody’s, the group cited the unprecedented 41 percent cut in state support for the university from Governor Mike Dunleavy’s line-item vetoes, the state Legislature’s failure to override Dunleavy’s vetoes and the university’s board of regents putting off a vote of financial exigency as reasons for the multi-notch downgrade.

Diane Viacava is a higher education analyst with Moody’s. She says the university has unique challenges that make it difficult to offset the budget cuts.

“Given the uniqueness of Alaska and the University of Alaska’s market position and the student population base, it would be very difficult to grow, particularly within one year, the tuition revenues to be able to adequately offset that funding cut,” Viacava said.

A press release from the University said that the downgrade now makes the University of Alaska the second-lowest rated flagship university in the country, ahead of only the University of Puerto Rico.

Susan Fitzgerald with Moody’s says that even though there has never been as drastic a drop in rating for a university in the past, the University of Alaska is still viewed as investment grade.

“We’re not anticipating that the university is going to default on its debt,” Fitzgerald said. “We are just highlighting that the credit risk is magnified as they adjust to very material budget reductions.”

The BAA1 rating is three levels above “non-investment grade.”

Viacava cited the university’s position as the state’s primary higher education hub as a reason for why it hasn’t reached that level. Additionally, the University of Alaska has $253 million in unrestricted monthly liquidity. That’s essentially cash or investments that the university could liquidate in under 30 days.

In a statement, UA President Jim Johnsen said that declaring financial exigency won’t affect the recent downgrade, but could change the university’s outlook with Moody’s in the future.

Editor’s note: A press release from the University of Alaska stated that the university’s BAA1 rating was two levels above “non-investment level.” A representative from Moody’s said that it is three levels above.