Moody’s, the bond rating agency, has downgraded Yeshiva University’s debt to junk, and says it may drop the grade even further. The downgrade took place the same week that the $380 million law suit against the school for sexual abuse of students was dismissed by New York courts, who said that the statute of limitations had long ago run out. Moody’s had already downrated the school last October, to Baa2. The new ratings indicate the school is subject to high risk and considered a gamble.
“The magnitude of the downgrade to B1 reflects the depth of operating and cash flow deficits concurrent with extremely thin unrestricted liquidity and lack of a clear strategy to regain financial equilibrium,” the Moody’s report read. Standard & Poor also downgraded the school in December.
The Forward reported that YU responded in a statement on January 10, saying that “The recent decision by Moody’s was not unexpected based on its previous commentary and, in fact, we are already addressing many of the issues outlined in the report.” YU has a $60 million bank line of credit (for paying bills) that secured by two vital campus buildings, and revenue shortfalls just keep coming, including a deficit of $150 million last year alone. The school expects to run deficits in each of the next three fiscal years. There have been some bright spots for the school in recent months as well: Y.U.’s medical school received a $160 million bequest in 2013.
“The university has become increasingly reliant on external credit facilities to support operations,” Moody’s wrote. “Deep structural operating imbalance is expected to continue for the intermediate term.” They also said the school is using its endowment to pay for operating costs and interest.
The YU statement also noted that “Moody’s noted several positive considerations including our history of strong donor support and healthy revenue diversity, as well as the relatively large size of the University’s assets (including marketable real estate and the endowment),” YU wrote. “We will continue to confer with our rating agencies and other financial institutions to keep them fully informed of our remedial plans and actions to earn their increased confidence over time.”
Inside Higher Education reported that faculty salaries were frozen for the last five years, though they received a slight increase this year—while contributions to their pension funds were cut. Faculty searches may be held off and, according to a Commentator article in December, YU chief Richard Joel, who cut his pay by $100K, is ready to sell off some real estate. According to The Journal of Higher Education, Joel is among the top twenty highest earning university officials in the nation.
In a December letter to the faculty, Joel outlined sweeping changes that began at the time of the announcement. There was a freeze of senior administrators’ salaries, a freeze on hiring, and a freeze of the employee retirement plan. YU would be cutting non-essential programming and selling real estate. Vice President Joshua Joseph announced that YU would sell 11 properties on the Wilf uptown campus and senior administrators will not receive raises for at least a year.
The Commentator reported that one member of the faculty council said, “The University’s matching contributions to our retirement savings were a guaranteed part of our compensation. Now it turns out that the University’s administrators regard the faculty’s retirement benefits as a source of ready cash they can tap at will to pay for their mistakes and mismanagement.”
In the recent letter, President Joel promised to craft “a new strategic plan through the efforts of deans, faculty, administrators, and trustees, while structuring a sound business plan to support it.”
Ruth A. Bevan, the director of Yeshiva’s international affairs program told Inside Higher Education that Yeshiva’s model may be preferable for some Jewish families, particularly parents of high-achieving female students. The party schools of the day are just not a good fit for the children of modern Orthodox parents. “… I don’t think there is any Orthodox parent that wants put to his or her child into that kind of situation, so YU remains a haven, it’s a safe environment for students to be in,” Bevan said. “We don’t have drugs, we don’t have alcohol; we don’t have staying out all night—that just doesn’t happen at the university.”
Professor Steve Fine, told Inside Higher Education that “Our administration is having difficulties but they are decent and good people, which is a nice thing to be able to say, and they have worked hard to be able to protect the faculty,” Fine said, and added that the school has the highest undergrad enrollment, sends students on to graduate schools and has huge fiscal assets, including the foundation, loyal donors and New York City real estate.
