Moody’s Investor Service downgraded the credit rating of Georgetown University, among other U.S. universities, this past spring. A downgrade, while not catastrophic for Georgetown, can be considered a slight taint on a university’s financial reputation.

Moody’s, one of the two major credit rating agencies, lowered Georgetown’s long-term rating from A2 to A3. Of the ten possible ratings for investment grade bonds, ranging from Aaa to Baa3, Georgetown’s credit rating slipped from the sixth to the seventh lowest place. According to the July 18 Chronicle of Higher Education, these ratings assess each institution’s relative financial strengths and affect their cost of borrowing. As a result, institutions with lower ratings and higher risk must offer higher interest to investors.

“This action did not come as a surprise to Georgetown,” Julie Green Bataille, assistant vice president of communications, said. “Moody’s put Georgetown on a credit watch with negative outlook back in January, and the action in June formalizes their earlier analysis and opinion.”

According to the Chronicle of Higher Education article, oody’s explained its reasoning by citing Georgetown’s “inability to offset investment losses with an increase in donations,” its forecast of continuing operating deficits and the university’s pool of financial resources “substantially below” peer institutions.

Bataille, speaking for several university administrators, estimated an operating deficit of $11 million for fiscal year 2002, and acknowledged that “Georgetown has been experiencing operating deficits much higher than this since the late 1990s, due to the financial losses experienced at Georgetown University Hospital and the clinical practice.”

From 1997 through 2000, the hospital reported increasing losses of $57 million, $63 million and $83 million, resulting in the sale of the hospital to MedStar Health. Bataille estimated it would take several years to successfully complete the MedStar transition and move the university out of the red.

The situation at the hospital is complicated by a sagging stock market and a nationwide economic downturn that have made endowments shrink and donations more difficult to obtain.

Universities, however, continue to build and expand to attract new students. The New York Times reported that the $5.5 billion that U.S. universities accumulated in debt during the first quarter of 2003 represented a 58 percent increase over the amount borrowed during the first quarter of 2002 and a 200-percent increase during the first quarter of 2001. The Times also noted that by January 2003, Moody’s had already downgraded three times as many universities as it had at that time the year before.

Boston College and Wesleyan University were two of the other colleges downgraded this year, although their ratings remain slightly higher than Georgetown’s. Like Georgetown, they have both borrowed recently to complete significant campus building projects. Georgetown borrowed almost $300 million in 2001 to help finance recent projects such as the Southwest Quadrangle.

“The Moody’s ratings are not an issue for our existing debt,” Bataille said. With approximately $650 million in outstanding obligations, however, Georgetown is close to its debt capacity of $700 million, which Bataille does not expect to be increased.

According to Bataille, in such an environment, donations become even more important and Georgetown has made great strides in this area.

“The past fiscal year has been Georgetown’s best fundraising year ever,” Bataille said. “Giving was up on all three campuses and the university raised $146 million total in new gifts and pledges.”

Moreover, donations by undergraduate alumni increased from 30 to 35 percent.

“All of these are positive indications that the university is well positioned for future support and shows how much alumni value the university and the education they received here,” Bataille said.

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