Monday, April 21, 2014
Moody's Investors Service, Moody's Downgrades Vermont Law School to Ba1; Outlook Negative:
The downgrade to Ba1 reflects continued substantial declines in JD enrollment given reduced national demand, expectations for lower net tuition revenue that will pressure cash flow and debt service coverage, and modest projected headroom on a financial covenant that may require an extraordinary release of net assets to remain compliant in the near term.
The Ba1 rating captures Vermont Law School's adequate liquidity coverage of demand debt and financial resource cushion for debt and operations, as well as management's demonstrated ability to manage through the past few years' weakened law school demand while maintaining stable cash flow. The rating also incorporates the school's small size and niche position as a standalone law school, modest financial resources, and high dependence on student charges.
The negative outlook reflects the potential for future erosion of the school's market position leading to weaker operating performance and erosion of financial covenant headroom that could jeopardize orderly access to the market or raise concerns about debt acceleration.