Ratings On Two Osteopathic Colleges Placed On CreditWatch Negative Pending Review Of Regulatory Risk

Burrell College of Osteopathic Medicine LLC (BCOM) and the Idaho College of Osteopathic Medicine LLC (ICOM) are rated peers of Minnesota Medical University LLC's Minnesota College of Osteopathic Medicine (MNCOM)—a proposed osteopathic medical school we downgraded this year after it failed to receive pre-accreditation from the Commission on Osteopathic College Accreditation (COCA).
BCOM and ICOM, like MNCOM, are developing schools. But they have both received pre-accreditation and are preparing to graduate their initial classes in 2020 and 2022, respectively. This puts them much closer to final accreditation than MNCOM.
However, we are placing our 'BBB+' ratings on both BCOM and ICOM on CreditWatch with negative implications because we have decided to review the regulatory processes at COCA, the national regulator that determines osteopathic schools' accreditation status, grants permission to increase class size, and authorizes campus expansions.
We are also reviewing the assumptions underlying our medium- and long-term financial projections, which utilize metrics such as class size and school expansion that require COCA approval.
We expect to resolve the CreditWatch placement within the next 90 days, and depending on our view of COCA's regulatory procedures we could leave the ratings unchanged or lower them by at least one notch.
SAN FRANCISCO (S&P Global Ratings) Sept. 16, 2019--S&P Global Ratings today took the rating actions listed above. All osteopathic schools rely on COCA for key approvals that include final accreditation following the graduation of the school's first class, and permission for schools to increase their class size. Moreover, COCA, in its role as regulator, is a gatekeeper, balancing the supply of new osteopathic schools with its assessment of the market's capacity to absorb new graduates.
Our CreditWatch negative placement reflects that we may lower the ratings on BCOM and ICOM by at least one-notch following a review of the regulatory and accreditation construct, which may lead to us to revise assumptions that underpin our financial forecast, such as class size increases. We will also revisit our medium to long run forecast assumptions with respect to the volume risk osteopathic schools have—that is whether they can attract qualified candidates at presumed tuition rates over time. (We would note to date both schools have attracted a significant number of applicants and appear to have solid pricing power to set tuition rates.) We anticipate concluding our review in about 90 days.
We could remove our CreditWatch action once our review of our original assumptions for this asset class is complete, concluding that no additional adjustments to our assumptions are needed or that adjustments are made but which are neutral to the current rating.
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