St. Francis College, NY Revenue Debt Rating Lowered To 'BBB+' On Weakened Operations And Enrollment

SAN FRANCISCO (S&P Global Ratings) Feb. 28, 2019-- S&P Global Ratings lowered 
its long-term rating to 'BBB+' from 'A-' on the New York State Dormitory 
Authority's revenue debt, issued for St. Francis College (SFC). The outlook is 
stable.

"The rating downgrade reflects our opinion of the weakened operating 
performance, characterized by widening operating deficits since fiscal 2016, 
extraordinary endowment draws in fiscal 2018 to support operations, and the 
expectation for such draws to continue in the next few years," said S&P Global 
Ratings credit analyst Ying Huang.

"The rating also reflects our opinion of SFC's enrollment pressures, with 
weakened selectivity and applications as well as its increasing tuition 
discount rate in fall 2018," Ms. Huang continued. We understand that 
management is adjusting its financial aid and marketing strategy and expanding 
its geographical reach and programmatic offerings in an effort to stabilize 
the college's enrollment and operations. However, management plans to use 
extraordinary endowment spending during fiscal 2019-2022 to support operations 
and the strategic initiatives, which may significantly reduce the available 
resources in the next few years. We believe SFC's robust balance sheet for the 
rating category provides cushion to support the strategic initiatives and 
precludes a lower rating at this time, and we understand that management is 
actively exploring options to improve the college's operations and available 
resources. However, the rating could be pressured, in our view, if management 
fails to maintain the available resources ratios to be close to current levels 
and to stabilize enrollment and operations during the outlook period. 

We assessed SFC's enterprise profile as adequate, characterized by enrollment 
growth as well as improved matriculation and retention rates in fall 2018, 
offset by weakened selectivity and applications, significant competition in 
the region, and limited geographic diversity. We assessed SFC's financial 
profile as adequate, with robust available resources, a growing tuition 
discount rate, negative operating performance in the last three fiscal years 
(despite extraordinary endowment draw in fiscal 2018), and limited revenue 
diversity. Combined, we believe these credit factors lead to an indicative 
stand-alone credit profile of 'bbb'. As our criteria indicate, the final 
rating can be within one notch of the indicative credit level. In our opinion, 
the 'BBB+' rating on the college's bonds better reflects SFC's sound available 
resources for the rating category compared with medians and with those of 
'BBB' rated peers.

The stable outlook reflects our opinion of SFC's improved enrollment in fall 
2018 and the above-average available resources that partially offset the 
weakness in operations and support the current rating. We expect the college 
to maintain the available resources ratios to be close to current levels and 
stabilize enrollment and operations during the outlook period, and gradually 
moderate the reliance on extraordinary endowment spending beyond fiscal 2020. 

We could consider a negative rating action during the two-year outlook period 
if enrollment decreases again such that operating deficits continue to 
increase, if the demand metrics deteriorate from the current levels, if the 
available resources relative to operations and debt weaken from the current 
levels, or if the college fails to reduce the reliance on extraordinary 
endowment spending beyond fiscal 2020.

We believe a positive rating action is unlikely during the two-year period 
given the recent downgrade and the college's weakening selectivity and 
operations. However, we could consider a positive rating action over time if 
SFC sustains stable enrollment trend while maintaining or improving the demand 
metrics, reports consistent positive operating results on a GAAP basis while 
reducing its endowment spending rate to the policy level, and improves its 
available resources relative to operations and debt to be commensurate with a 
higher rating.

At June 30, 2018, the college had $34.6 million of long-term debt outstanding.
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