Rating Action: Moody's revises William Paterson University (NJ)'s outlook to negative; assigns A3 to Series 2021Global Credit Research - 09 Feb 2021New York, February 09, 2021 -- Moody's Investors Service has revised William Paterson University of New Jersey's outlook to negative from stable and has assigned a A3 to WPU's proposed approximately $20 million Revenue Bonds, Series 2021 C. The bonds will be issued through the New Jersey Educational Facilities Authority and have a final maturity in 2040. Concurrently, we affirmed WPU's A3 rating on $178 million of outstanding debt.RATINGS RATIONALEThe revision of the outlook to negative reflects enrollment declines that will continue to weigh on operating performance and liquidity in fiscal 2021. After multiple years of enrollment declines of up to 3%, enrollment dropped by 9% in fall 2020 driven by the coronavirus pandemic and related economic uncertainty. With modest operating deficits and thin operating cash flow, between 5.1% and 7.6% for fiscal 2018 through fiscal 2020, WPU's debt service coverage remains weak at around 1x (Moody's adjusted). Liquidity, while still sufficient for the rating, has also declined markedly, to 114 monthly days cash on hand for fiscal 2020 from 194 days in fiscal 2016, limiting WPU's operating flexibility, particularly in light of enrollment challenges and state budgetary strain, with expected state operating deficits through fiscal 2022.Assignment and affirmation of the A3 rating reflect expectations that WPU's recently announced restructuring and additional federal support will result in improved operating performance. If successfully executed, restructuring will significantly reduce operating expenses and improve operating cash flow margins toward pre-2018 levels above 10%. The rating is further supported by the university's role as a mid-sized regional public university with still healthy financial reserves and generally good state support. Spendable cash and investments of $82 million provided 0.4x coverage of operations and debt for fiscal 2020. A high pension burden is a further offsetting consideration, although this liability is paid directly by the state.We regard the coronavirus as a social risk under our ESG framework given the substantial impact for public health and safety. Additional social considerations include demographic and societal trends, of particular note considering WPU's niche serving Hispanic students, a demographic especially challenged economically by the pandemic, and its mission to provide affordable public higher education, which limits its ability to raise tuition. Favorable governance considerations include management's restructuring plan that demonstrates willingness to reduce costs to help match revenue declines. Attaining balanced operating performance without negatively impacting WPU's good strategic positioning is an additional credit challenge.RATING OUTLOOKThe negative outlook reflects the risk that, despite the university's planned expense savings measures, revenue and enrollment stress will continue to weaken operating performance, liquidity and debt service coverage.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS-Sustained stronger debt service coverage-Continued growth in wealth and liquidity-Material improvement in market position reflected in stronger enrollment patternsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS-Inability to achieve debt service coverage of at least 1.0x by fiscal 2022-Continued declines in student generated revenue that is not offset by expense cutting measures-Material decline in appropriations from the State of New Jersey or credit deterioration of the state-Further weakening of liquidityLEGAL SECURITYAll bonds are unsecured general obligations of the university payable from any legally available funds of the university. There is no debt service reserve fund on any series of bonds.USE OF PROCEEDSThe proceeds from the Series 2021 bonds will be used to renovate various campus academic buildings and facilities.PROFILEWilliam Paterson University is a regional, Hispanic-serving public university located in Wayne, New Jersey. The university is primarily an undergraduate university but also offers graduate and doctoral degrees through its five academic colleges. The university has over 7,000 full-time equivalent students and generates over $200 million of operating revenue.METHODOLOGYThe principal methodology used in these ratings was Higher Education published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1175020. 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