May 24, 2017

Moody’s Investment Services sees trouble in Webster’s financial future

Investment agency Moody’s Investment Services gave Webster a negative investment outlook in its December 2016 report.

Moody’s upheld Webster’s current credit rating, an A2. This rating marks the university as a stable, safe investment. However, the negative outlook denotes that Webster’s financial standings are likely to change for the worse in the future.

“The negative outlook reflects considerable pressure on multiple segments of Webster’s enrollment which could disrupt management’s plans to stabilize operations and net tuition revenue in FY (fiscal year) 2018,” the Moody’s report states.

The report, issued Dec. 21, 2016, listed several “credit challenges” Webster’s finances face, including:

  • “Contracting net tuition revenue with enrollment declines in graduate, metro and military programs
  • Weak cash flow of seven to eight percent expected to continue through fiscal year (FY) 2017
  • Complex business model presents unique challenges, requiring significant central management oversight of 76 campuses worldwide
  • High reliance on student charges at over 90 percent of Moody’s adjusted operating revenue.”

According to Webster business professor Debbie Psihountas, Webster is in a better position to recover from rough financial periods than many of its competitors, due to its international presence.

“That actually is spreading risk,” Psihountas said. “If one market has a really bad downturn, other markets can absorb the loss.”

The report does contain some optimistic assessments of Webster’s future performance.

“Management has enacted a multipronged approach to stabilizing overall enrollment including academic program reviews at all locations, site reviews culminating in closure of 11 metro and military sites in recent years, and targeted new program development,” the report states. “These actions are expected to result in the resumption of modest net tuition revenue growth in FY 2018.”

If Webster does not meet its net tuition revenue goals in FY 2017, Moody’s cautions, the university’s credit rating may be negatively revised.

Psihountas said a credit downgrade could negatively impact Webster’s ability to borrow money. However, this negative investment outlook is unlikely to affect the university’s financial fortunes in the short term.

“[A negative outlook] says, ‘based on what we see, we’re not feeling great,’” Psihountas said. “That doesn’t mean it can’t be turned around.”

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