The University of La Verne was classified as financially stable after receiving an “A” rating from Fitch Ratings last month. Fitch Ratings is an organization that publishes credit ratings for corporations and other institutions based on their ability to meet financial commitments, such as paying off debts.
Fitch’s credit rating scale uses the categories “AAA” to “BBB” which is an investment grade, and the speculative grade ‘BB’ to ‘D’. Investment grade categories signify a low-to-moderate credit risk while a speculative grade indicates a higher credit risk.
The University has received a Fitch Rating almost every year since 2010. The bond rating was a “BBB+” when the University was first rated, it rose to an “A-” in 2015, and to an “A” in 2019, where it has remained to today.
An “A” rating is a high credit quality, which means that the University’s ability to meet financial commitments is strong.
Rick Hasse, instructor of accounting and finance and co-chair of the Faculty Compensation and Budget Committee, said it is important to do a credit rating every year because of the University’s estimated $10 million a year debt service and if the rating is poor the University will have to pay more for their debt.
“It’s very important for the University to maintain a sound fiscal base to maintain our credit rating,” Hasse said. “Because having a high debt service will take away from what we could spend on classrooms, athletics, faculty and scholarships.”
Matthew Witt, professor of public administration and Faculty Assembly Vice President, said that he believes the University has problems that should be resolved first before focusing on a bond rating.
“No one involved in this institution or any institution like it doesn’t want a positive bond rating,” Witt said. “It’s just that while that is a very important status to maintain, it doesn’t address pressing matters and it may itself cause those pressing matters.”
A pressing matter that was reflected in the University’s revenue defensibility rating was the decline in enrollment over the past few years. The revenue defensibility rating is a “BBB.”
“Either we find more students, or we start cutting costs,” Hasse said. “When you cut costs, that means departments are affected. People are affected.”
Avo Kechichian, the University’s chief financial officer, said the reason for the lower rating was because 99% of the University’s operating budget is funded through enrollments, which has declined markedly during the past few years.
Kechichian added that a financial sustainability plan will be presented to the University’s Board of Trustees in mid-December.
“Once they approve the plan, then we’ll be able to implement the initiatives that are in those plans,” Kechichian said. “One of the initiatives is to not only to reverse the trend of enrollment declines, but also to sustain and, over the long haul, to increase the enrollments at the University”
Hasse added that the University is facing a deep budget shortfall in the next few years.
“We have rising costs,” Hasse said. “We have a market that’s not willing to pay those high costs, and I don’t blame them, they shouldn’t. And that’s the situation we’re dealing with. And we have to manage it, and work together on that. And that’s what we’re trying to do.”
For more information on Fitch Ratings visit, fitchratings.com/research/us-public-finance/fitch-affirms-university-of-la-verne-ca-idr-at-a-outlook-stable-15-11-2022.
Samira Felix can be reached at email@example.com.