Moody's Investors Service has downgraded Mountain State University's revenue bond four notches because of the Higher Learning Commission's decision to withdraw accreditation.
According to Moody's, MSU's bond rating plummeted from Baa3 to B1.
Moody's maintains review of the credit, which will focus on the appeal, fall enrollment, cash balances and potential for acceleration of bank debt, it stated.
"The rating action affects $5.6 million of rated debt issued through the City of Beckley, WV and the Raleigh County Building Commission," according to Moody's.
In the Baa category, obligations are judged to be "medium-grade and subject to moderate credit risk and such may possess certain speculative characteristics," according to Moody's. Between Baa3 and B1 are Ba1, Ba2 and Ba3.
Additionally, those in the B category are "considered speculative and are subject to high credit risk," a Moody's document stated.
The board of trustees of the HLC recently decided to withdraw accreditation effective Aug. 27. However, MSU officials announced they will appeal the decision.
"The downgrade to B1 from Baa3 reflects the withdrawal of the university's accreditation by the HLC of the North Central Association of Colleges and Schools," Moody's stated. "While the university plans to appeal the decision and the commission's process provides for that, we believe the Higher Learning Commission of the North Central Association (HLC) decision signals an increased likelihood that the university will ultimately lose its accreditation."
Moody's notes the loss of accreditation would be "a sharp blow" to the university with expectations that "enrollment would plummet and its students would no longer be able to benefit from federal financial aid programs."
"As of fall 2011, 81 percent of full-time undergraduates received financial aid with the majority of those participating in federal programs," Moody's stated, later noting if the appeal resulted in full withdrawal of accreditation then the university would "likely have a better cash cushion than other similarly rated universities."
According to Moody's, as of May 31, 2011, cash and investments covered debt by 148 percent.
"This cash cushion increases the prospects for timely debt service payments for some period," Moody's said. "The university does, however, have bank debt that enjoys a collateralized interest in approximately $11 million of its cash and investments, reducing the amount available for the Series 2004 bonds."
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