University Credit Rating Drops

By Clay Risen Hoya Staff Writer

Citing the continuing financial crisis at the Georgetown Medical Center, Moody’s Investor Services has downgraded the university’s long-term debt rating one notch, from A1 to A2. The reduction, which was announced Dec. 30, reflected concerns over the continued operating pressures faced by the Medical Center and the accompanying low profits.

The reduction also indicated a sense of investor pessimism in the university’s ability to solve the Medical Center’s financial difficulties, especially in light of a $62-million loss in fiscal year 1998 and a $57-million loss in 1997, as well as the fear that the Medical Center’s plight will hurt the university’s overall financial position.

The university’s credit rating measures its likelihood of repaying outstanding debts. A lower credit rating makes it more difficult for the university to issue bonds, and to raise funds thereby.

According to a Moody’s press release, “As long as the university remains an owner of an independent medical center in the District of Columbia, its operating performance will be weak and asset growth impaired.”

However, according to spokesman Paul Donovan, the Medical Center had reduced costs by $20 million since fiscal year 1997 but, because it switched over to a new billing system, the Medical Center’s deficit increased by $21.6 million. “Whenever you change a billing system, you inevitably run into trouble,” he said.

While Moody’s, a New York-based company that tracks the financial outlooks of companies and institutions in a variety of sectors, was critical of the university’s inability to solve the Medical Center situation, it did offer a number of positive comments on the university’s overall financial position. According to the report, Georgetown’s high popularity among college applicants, increased returns on the university’s investments and its aggressive fundraising efforts are helping to shore up the volatility caused by the Medical Center’s losses.

According to university spokesman Dan Wackerman, these increased returns and fundraising have “kept our overall assets from declining despite the Medical Center’s losses. . Fund raising has been up both at the Medical Center and in the university as a whole.”

The report did, however, raise some concern over the university’s major projects in the near term, including the Southwest Quadrangle, which is expected to involve around $100 million in debt. “Because it is unlikely that asset growth will fully offset these increased debt levels,” the report says, “the university’s leverage position is likely to be further weakened over the medium term.”

The university has considered a number of solutions to the edical Center’s financial situation, including a partnership with another local health-care provider in order to shore up the instability brought on by changes in the health care industry.

According to Donovan, “We expected this. Like nearly all academic medical centers, Georgetown has been adopting to a dramatically changing health care environment, but its fundamentals remain strong.”

Many schools of competitive ranking have higher long-term debt ratings than Georgetown, including the University of Pennsylvania at Aa2, Duke University at Aa1, and the University of Notre Dame at Aaa, according to Moody’s. Moodey’s ranking system runs Aaa, Aa1, Aa2, Aa3, A1, A2, Baa, etc. through C, from best to worst.

The University of Pennsylvania ranks three levels above Georgetown, counting both letters and numbers; Duke University ranks four levels higher than Georgetown, and the University of Notre Dame five levels higher than Georgetown.

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