U of L Foundation's bond outlook downgraded

Moody’s has downgraded the outlook for bonds issued by the University of Louisville Foundation from stable to negative, citing “stagnant to declining” finances and the university’s needs for cash.

While the bonds are still rated in the investment grade category, meaning that they are among the least likely to default, the revised outlook could trigger changes in the price of the bonds and make it harder for the foundation to borrow money.

University of Louisville spokesman John Karman did not have an immediate comment.

In a report issued Monday, Moody’s Investors Service, a leading provider of credit ratings and risk analysis, also affirmed a 2014 downgrade of the foundation’s rating to Aa3.

Moody’s said the foundation’s negative outlook was driven by stagnant to declining financial reserves, and a likelihood of weaker than expected market returns amid ongoing cash needs by the university. The outlook is further clouded by the foundation's unconditional guarantee of some of the debt issued by ULH Inc., a campus housing entity, and U of L's Athletic Association, Moody's said.

The credit rater also said the university's financial needs are rising while endowment spending has been higher than typical.

In an email, Joe Mielenhausen, a Moody's spokesman, said the foundation has seen "declining liquidity and financial reserves as they relate to the Foundation’s sizable debt guarantees." He said it is hard to compare university foundations because they have varying missions, but "from a sheer ratings perspective, ULF’s Aa3 rating is in line with its peers."

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Explaining the rating downgrade in 2014, Moody’s cited rising debt, including guarantees provided to debt at the university, and heavy dependence on gifts and investment income. The report did say the foundation had a stable balance sheet, providing an ample cushion to repay debt.

The system of rating securities, originated by John Moody in 1909, is designed to provide investors with a simple system of grades for future relative creditworthiness.

There are nine grades, ranging from AAA to C, which are in turn subdivided 1, 2 and 3.

The rating assigned the foundation bonds are the fourth highest; obligations rated Aa3 are judged to be of high quality and are subject to very low credit risk.

The foundation manages the university's endowment and pays for scholarships and other costs. It has given large salary supplements to U of L president James Ramsey, who is also president of the foundation.

Some critics on the U of L Board of Trustees have said he shouldn't run both because of the potential for conflicts of interest. As many as nine trustees also have supported a no-confidence vote in the president that has been delayed pending the appointment of new minority trustees.

Reporter Andrew Wolfson can be reached at (502) 582-7189