February 12, 2009 | Read Time: 2 minutes
Nonprofit organizations are in for a tough year of tightening credit markets and a deepening recession, according to two new reports from Moody’s Investors Service, a credit-rating agency, in New York.
According to the report, which tracked bond ratings in 2008 for 742 nonprofit borrowers, ratings were relatively stable last year overall. Moody’s changed the ratings of only 6 percent of the groups. But, the report says, over the course of 2008, the pace of upgraded ratings slowed, while the pace of downgraded ratings sped up.
The trend, the report says, “is reflective of our currently negative outlook for the sector in 2009.”
Bond ratings determine how much interest organizations must pay when they borrow money or issue bonds. Those with a higher rating pay less.
Despite the worsening economy last year, more nonprofit borrowers entered the credit market seeking a Moody’s rating than in 2007 — 43, up from 24. Among the 125 nonprofit organizations with Moody’s ratings in 2008, eight had their bond ratings elevated and three had them downgraded.
Investment Losses
The downgrades were driven mostly by declines in cash and liquidity levels, the report says, which were the result of, or were amplified by, investment losses.
Two of the downgraded organizations, the American Society for Technion and the Charitable Leadership Foundation, were also on a watch list for further downgrades, the report says.
Richard Liebich, chief executive officer of the Charitable Leadership Foundation, in Clifton Park, N.Y., says his organization’s rating has dropped along with the level of liquidity on its roughly $46-million in assets. But, he says, the foundation’s status will have no bearing on the loan the organization guaranteed on behalf of the Center for Medical Science, in Albany, which borrowed money to build a new research facility. “The bond is current and all interest and principal is being paid,” Mr. Liebich says. “The facility is fully rented and our rating has nothing to do with the renters’ ability to pay rent or the center’s ability to service the bond.”
Moody’s concerns about the American Society for Technion, in New York, centered on the organization’s losses in the alleged $50-billion Ponzi scheme led by the investor Bernard Madoff. “We continue to have a good rating and our rate of interest did not go up,” says Kevin Hattori, an American Technion spokesman. “We’re certainly leaner, but we are still here, moving forward and financially sound.”
The new reports: “2008 Higher Education and Not-for-Profit Year-End Review” and “U.S. Higher Education Outlook” are available to Moody’s subscribers only. For more information, contact Moody’s subscribers’ services desk at (212) 553-1653.
