Wednesday, July 30, 2014
Inquirer Daily News

NJ med school debt weakens Rutgers, S&P warns

AA rating may be cut to A, boosting costs

NJ med school debt weakens Rutgers, S&P warns

Robert L. Barchi in his first week as head of Rutgers University. He formerly was president of Thomas Jefferson University. (Clem Murray/Staff)
Robert L. Barchi in his first week as head of Rutgers University. He formerly was president of Thomas Jefferson University. (Clem Murray/Staff)

Standard & Poor's Ratings Services has cut its long-term outlook for future payback on the $1 billion-plus owed to bond investors by Rutgers, the State University of New Jersey, to "negative" from "stable," and may cut Rutgers credit ratings from the current "AA" to "A", forcing the taxpayer- and tuition-backed system to pay more interest on future borrowing.

As the school prepares to borrow hundreds of millions more, "Rutgers faces increased credit risk" this summer because it is taking over assets and debts of the BBB+-rated University of Medicine & Dentistry of New Jersey under a law backed by Cooper Health System chairman, insurance broker and Inquirer part-owner George Norcross and NJ Gov. Chris Christie, wrote S&P analyst Ken Rodgers in a report.

"Essentially, the act shifts the state's medical educational and teaching programs mainly to Rutgers University and represents a new mission for the university....

"Rutgers is planning on refinancing approximately $456 million of debt it will assume from UMDNJ and financing other capital projects it has underway or in development sometime later this year with a large bond issue early this summer.

 "The negative outlook reflects our belief that the preparation for and implementation of the New Jersey Medical and Health Sciences Education Restructuring Act will most likely lower operating performance and increase leverage, which, in turn, is likely to lead to a lower rating...

"The higher education funding environment and Rutgers University's capital program is also pressuring the rating as there hasn't been any meaningful improvement in key financial resource metrics in the past several years.

"We could possibly lower the rating to as low as the 'A' rating category shortly before or at the time Rutgers' debt plans are launched," Rodgers concluded.

Joseph N. DiStefano
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PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

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