UAF power plant

The University of Alaska Fairbanks' recently completed coal fired power plant. (University of Alaska Fairbanks).

Moody's Investors Service today sharply downgraded the rating of revenue bonds issued by the University of Alaska, citing an "unprecedented" single-year reduction in state funding of the university.

Moody's, one of three major companies that rates revenue bonds for potential investors, stated today that it downgraded UA general revenue bonds to Baa1 from A1, with $270 million outstanding, and the university's Series 2012 Lease Revenue Bonds to Baa3 from A2, with $23 million outstanding.

"The multi-notch downgrade for both the revenue bonds and the lease revenue bonds reflects the severity and magnitude of the financial challenges confronting University of Alaska following an over 40% cut in the university's appropriations from the State of Alaska (Aa3 stable) for the current fiscal year, 2020," Moody's wrote.

"With this unprecedented single year cut in state appropriations, there is a high likelihood of a material reduction in the university's liquidity over the next year as it uses cash to fund programs pending restructuring of operations, and for the associate costs of that restructuring," the Moody's notice reads. "UA's strategic position has been materially impaired by this funding reduction, as well as a cut to the state's financial aid programs, and we expect a multi-year negative impact on enrollment, which was already declining, as well as the competitive position of University of Alaska's research enterprise."

The university issued a news release shortly after the Moody's announcement, noting that the decision makes UA the second-lowest rated flagship university in the nation.

“This is a direct result of the state’s budget cut and demonstrates what we have been saying — the 41 percent [$136 million] budget cut to the university continues to harm us every day,” UA President Jim Johnsen stated in the news release. “Today’s news just amplifies the impact of the state’s funding cut — Moody’s downgrade harms our ability to bond or borrow money at favorable interest rates and to be viewed as financially stable.”

UA has financial indebtedness on several of its buildings including the UAF Engineering Building, the UAA University Center and the UAF Power Plant, according to the news release.

A rating of Baa1, which Moody's assigned to UA's general revenue bonds, means the investment is subject to moderate credit risk and may possess certain speculative characteristics, according to NASDAQ. A rating of Baa3, which Moody's attached to UA's 2012 Lease Revenue Bonds, also indicates moderate credit risk and is the lowest rating of investment grade. Any lower rating would make the bonds non-investment grade.

Contact Editor Rod Boyce at 459-7585. Follow him on Twitter: @FDNMeditor.