Rutgers sees credit rating drop for second time since UMDNJ merger
It was reported last year that the University had more than $700 million in unrestricted reserves, but this has not saved Rutgers from seeing its credit rating drop.
Standard and Poor’s (S&P) announced they downgraded Rutgers University’s debt rating near the end of September due to the merger with the University of Dentistry and Medicine of New Jersey two years ago.
This is the second downgrade since January 2013 by the credit rating company.
According to an article by Forbes, a company, country or other institution’s credit rating indicates how much confidence the rater has in their ability to pay off debts.
A lowered credit rating means it can be more expensive for an institution to take out a loan, according to the article. The bank or institution providing the loan can choose to charge a higher interest rate or otherwise control the terms of the payback.
S&P’s website said its ratings represent what they believe about an institution’s “ability and willingness” to pay back a loan.
“Credit ratings are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or debt issue will default,” according to the site.
A rating may not actually indicate how well a group can pay back a loan.
Rutgers is still spending money to cope with the costs of the merger, according to an nj.com article.
According to northjersey.com, combining the two institutions resulted in deficits over the last two years. A deficit comes from spending more money than is earned in a given time period.
The University has not updated its financial date since mid-2014, according to nj.com. The rating downgrade reflects this outdated information.
The rating company also changed Rutgers’ bond rating down one step, due to its “$115 million outstanding on bonds totaling $190 million.”
The University has repaid $75 million of its debt on the bonds so far.
S&P said the University is “financially flexible” as it “continues to more fully integrate assets” and other aspects to the merger.
“Even with the downgrade, Rutgers' rating is still one notch higher than New Jersey's,” according to the nj.com article.