News Tech: Global Credit Research – August 22, 2022New York, August 22, 2022 — Moody’s Investors Service has lowered Wheaton College’s (MA) issuer and revenue bond ratings to Baa2 from Baa1, with a stable outlook. The college owed $84 million as of the fiscal year 2021. The outlook was changed from negative to stable.RATINGS RATIONALEThe issuer rating was lowered to Baa2 principally due to considerable student market problems faced by Wheaton as a result of changing demographic and societal changes, which falls under Moody’s ESG framework.
While management expects to report a surplus in fiscal 2022, it is largely the result of one-time funding. Management expects deficits to return beyond fiscal 2022 as programmatic and other strategic investments are made, with a balanced budget dependent on hitting enrollment targets and likely several years away.The Baa2 issuer rating additionally incorporates Wheaton’s favorable wealth and liquidity cushion that provides management with some financial flexibility as it makes strategic investments to bolster enrollment. With a recent change in leadership, management has revised the enrollment strategy and is investing in new programming intended to attract and retain additional students. The college has a history of relatively strong donor support, which should aid in funding some of these initiatives. The rating also reflects the college’s high financial leverage.The revision of the outlook to stable reflects Wheaton’s ample wealth relative to its debt and operating expenses, which provides a buffer against costs associated with new enrollment strategies. Further, the college has a new management team as of 2022 that has a stated willingness and intention to right-size the budget through both revenue growth and expense management.The Baa2 revenue bond rating reflects the general obligation nature of the credit pledge and the broader credit characteristics associated with the Baa2 issuer rating.RATING OUTLOOKThe stable outlook reflects Moody’s expectations that the college will maintain a favorable wealth and liquidity cushion as management executes its new enrollment strategies. It also reflects expectations of EBIDA margin improvement beyond fiscal 2023.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Sustained increase in enrollment with corresponding material growth in student-generated charges- Significant improvement in operating margins with debt service coverage over 1x- Maintenance of solid wealth and liquidity levelsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Inability to successfully execute on stated plans regarding enrollment and programming- Further thinning of EBIDA margins beyond that already identified- Deterioration of cash reservesLEGAL SECURITYBonds are unsecured general obligations of the college. The Series H, I and J bonds do not have any financial covenants. Based on Moody’s calculations, in fiscal 2020 and fiscal 2021, annual debt service (ADS) coverage declined to less than 1x. Based on the indenture, per the college, pledged revenues in fiscal 2021 were closer to 1.3x ADS coverage.PROFILEWheaton College is a four-year, private liberal arts college in Norton, Massachusetts, between Boston, Massachusetts, and Providence, Rhode Island. The college enrolls about 1,700 FTE students and reported $71 million in operating revenues in their fiscal 2021 audit.METHODOLOGYThe principal methodology used in these ratings was Higher Education Methodology published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/72158. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
The northeast region in which the college operates is quite competitive. Overall income decreases have been attributed to greater tuition discounting and decreased net tuition per student, even while enrolment is mostly unchanged. The COVID-19 epidemic put further burden on operations. The college does acknowledge that the net tuition for first-year students has gone up since 2019, but this hasn’t more than offset the decreased costs for students who are already enrolled. In fiscal years 2020 and 2021, according to Moody’s calculations, EBIDA margins were less than 5% and debt service coverage was less than 1x.