Moody’s upgrades NJCU’s outlook from ‘negative’ to ‘stable’

Twenty months after declaring a financial emergency that seemingly had the school on the verge of bankruptcy, New Jersey City University received a stunningly positive review from Moody’s, which upgraded its outlook from “negative” to “stable.”

The agency also affirmed NJCU’s Ba2 issuer and revenue bond ratings.

According to the report by Moody’s, the revision of the outlook to “stable” reflects meaningful traction on financial turnaround plans, which have allowed NJCU to significantly reduce operating losses and stabilize cash reserves.

Moody’s said the “stable” outlook reflects the likelihood that financial turnaround plans will support at least an 8-10% Moody’s-calculated earnings before interest, depreciation and amortization, or EBIDA, margin for fiscal 2024, with over 1x debt service coverage, and exceeding the minimum 35 days cash on hand financial covenant.

Moody’s noted the university had total outstanding debt of $244 million as of June 30, 2023 — and said issues remain.

“Despite this momentum, challenges remain around stagnant net tuition revenue, high leverage and thin reserves,” Moody’s wrote. “Improvements in financial strategy and risk management, and management credibility, which are governance considerations under Moody’s ESG methodology, are key drivers of the rating action.”

In the report, however, Moody’s said NJCU’s Ba2 issuer rating is supported by its role as a public university and Hispanic Serving Institution, serving an important access role for a diverse undergraduate and graduate student population.

While the leadership team has experienced additional transitions during fiscal years 2023-24, the team remains cognizant of the materiality of operating stress and has made significant traction on its financial turnaround plans, the report said.

NJCU is expected to exceed its 35 days cash on hand lease agreement covenant for fiscal 2023, with a Moody’s calculating 43 DCOH based on unaudited fiscal 2023 financial data. Further, unaudited fiscal 2023 results show an operating deficit of roughly $8 million, significantly less than the forecasted $22 million budget gap.

Fiscal 2024 is currently budgeted for breakeven operations and a slight increase in liquidity, supporting maintenance of headroom above the DCOH covenant. Budget 2024 operations do not include the additional $10 million provided by state stabilization funds, which NJCU anticipates using for budgeted and unbudgeted capital needs.

The report noted the appointment of a fiscal monitor by the state, Henry Amoroso, who continues to work directly with leadership to evaluate real estate positions and as state liaison for appropriation support.

The Ba2 revenue bond ratings incorporate the university’s issuer-level credit characteristics and general obligation to pay, with a first lien pledge on tuition and fee revenue.