Moody's Puts 4 Louisiana Colleges on Its Watch List, a Possible Prelude to Lowering Their Credit Ratings

By AUDREY WILLIAMS JUNE

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Three colleges in flood-ravaged New Orleans and a university system with a campus there might have their long-term credit ratings downgraded by Moody's Investors Service, which said in a report released on Thursday that Loyola University New Orleans, the Southern University System, Tulane University, and the University of New Orleans had all been placed on its "watch list."

Analysts at the credit-rating agency will continue to gather information about Hurricane Katrina's impact from officials at the affected colleges and then decide whether a rating should be lowered -- a decision with major implications for the colleges' cash flow at a time of maximum financial stress. A drop in an institution's credit rating can require it to pay higher interest rates to sell its bonds to investors.

Moody's typically will take action on a possible rating change within 90 days, said Susan Fitzgerald, senior credit officer in the agency's public-finance group.

"This is a disaster that is of unusual magnitude," Ms. Fitzgerald said. "There is so much uncertainty that we thought it was important to alert the bond market that we are watching this."

Past natural disasters that have affected colleges have not prompted Moody's to lower its credit ratings because insurance, federal-government grants, and private donations have tended to cover any losses. However, because the damage to New Orleans is so vast, "we believe that even with strong insurance coverage, the affected institutions may experience significant and long-lasting financial stress in the aftermath of Katrina," says the report, which covers a variety of bond issuers in Alabama, Louisiana, and Mississippi.

Although Katrina affected nine higher-education institutions that Moody's rates, the agency noted that damage to the other five was minor and should not hurt their finances severely.

The hurricane-affected institutions that made the Moody's watch list not only have damaged campuses, but are located in a nearly empty city whose infrastructure is in ruins.

Scott S. Cowen, president of Tulane University, said Moody's analysts had told him that they normally produce watch lists after natural disasters. But knowing of that practice does not provide much comfort, he said.

"They don't understand," Mr. Cowen said. "This is not a normal situation. I'm not sure what their hurry is. They have to give us time. It's not even two weeks after the storm, and New Orleans is still closed."

Tulane, with a Moody's credit rating of A1, has $288-million of Moody's-rated debt outstanding. The university has said that damage to its campus can be fixed in a "reasonable period of time." And senior officials, working out of temporary quarters in Houston, plan to reopen Tulane in New Orleans for the spring semester.

Moody's said that Tulane's rating is under review because when it can reopen depends ultimately on how quickly New Orleans can bounce back. Tulane's financial losses and the extent of its insurance coverage are also not clear, the rating agency said.

Loyola University New Orleans, whose officials Moody's said it had been unable to reach, made the watch list for much the same reasons as Tulane. Its credit rating is A1, and it has $52-million of Moody's-rated debt outstanding.

Unlike Loyola and Tulane, the University of New Orleans has not yet said when its campus will reopen. Moody's is also concerned that the university, a member of the Louisiana State University System, had a "thin financial resource base" -- about $28-million in cash and investments -- before the hurricane. The university has $18-million in Moody's-rated debt outstanding.

The Southern University System's New Orleans campus is one of three in the system and makes up 20 percent of its total enrollment. Financial issues, including uncertainty about how the storm will affect its long-term fiscal stability, landed the system on the watch list. Its rating of Baa1 does not apply to any specific outstanding bonds, but instead reflects the system's general creditworthiness.

Moody's affirmed the ratings for Southeastern Louisiana University and Louisiana State University intact, along with the ratings for Mississippi State University, the Alabama College system, and the University of South Alabama.

• In Wake of Katrina, Colleges Face Host of Insurance and Facilities Problems, Experts Say (9/1/2005)