Moody’s Investors Service has downgraded Rider University’s revenue bonds to Ba2 from Ba1. The bonds were issued through the New Jersey Educational Facilities Authority. The rating is an indicator for potential investors that investing in Rider could be risky because the school may be unable to cover its debts.
Rider University recorded about $89 million of outstanding debt for the 2020 fiscal year. Debt rose to about $110 million with the school’s issuance of bonds in May 2021.
In addition to increased debt, the private university in Lawrence is facing declining enrollment, falling tuition, and declining auxiliary revenue.
“The rating downgrade to Ba2 from Ba1 reflects Rider University’s continued very weak operating performance, reliance on a line of credit, and recent increase in leverage, largely for working capital needs,” reads the Moody’s analyst’s negative rating outlook rationale.
“The university’s student demand and pricing power remain challenged, reflected in enrollment declines, lagging growth in net tuition per student, and an 8% decrease in net tuition revenue over the fiscal 2016-20 period. A significant decline in room and board revenue will result in fiscal 2021 deficits in line with fiscal 2020 despite federal relief aid funding and some expense reductions measures,” reads the Moody’s report. “While the university has articulated strategies to improve operations, a turnaround, if achievable, will take multiple years. In the interim, the university will fund deficits from proceeds of its recent Series 2021 bonds (not rated) and may also need to access reserves and lines of credit depending on the duration and magnitude of deficits. Deficit operations and strategic investments have already led to a 16% decline in monthly liquidity over the past five years. Rider’s recent issuance of Series 2021B bonds (not rated) elevates leverage risk with a bullet due in fiscal 2031.”
Rider University Spokeswoman Kristine Brown told the publication Inside Higher Ed that the landscape of higher education is changing rapidly, and that the global pandemic has exacerbated the existing challenges institutions like Rider have been facing, while also creating unforeseen new ones. Rider lost about $27 million in room and board and auxiliary revenue over the past two fiscal years and spent $2 million in COVID-19 related costs in 2020, she told the publication.
Rider enrolled 4,205 full-time equivalent students in the fall of 2020, had revenues of $131 million in the 2020 fiscal year, and a mortgage on its main campus in Lawrenceville, which has an appraised value of over $230 million, according to Moody’s.
The Moody’s report notes that school officials are committed to improving Rider’s financial performance in the face of softened revenue growth prospects, but that the university faces constraints, including a less flexible labor environment and litigation surrounding the sale of the Westminster Choir College property in Princeton.
The school would need to increase its enrollment, net tuition, auxiliary revenue, operating margins, and cash and investments to improve its position.
In February, Rider announced it was lowering its base undergraduate tuition from $45,120 to $35,000 for new students beginning in fall 2021. Brown said at the time that the change in tuition price does not mean lower net costs for students. “The initiative changes Rider’s high tuition, high discount pricing model, which creates a significant hurdle for students and families who believe the sticker price immediately puts a Rider education financially out of reach,” Brown said in a written statement at the time.