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Credit ratings agency Moody's downgrades several universities, including Oxford and Cambridge
The University of Manchester’s credit rating has been downgraded by ratings agency Moody’s, as more universities including Oxford and Cambridge are branded with a "negative financial outlook".
On 13 November Moody’s, which provides financial ratings to help inform investment decisions, said it had dropped Manchester’s credit rating from Aa2 to Aa3 amid slow growth and a “weak” financial performance at the university—which forecast an operating deficit for 2019—making it more vulnerable to wider economic risks in the UK.
The agency’s rankings range from a very low risk Aaa to a higher risk C. For Aa ratings, a 1 shows that an institution is lower risk, while a 3 shows it is slightly higher risk. All Aa ratings represent a very low credit risk, meaning an institution is unlikely to default on its debts.
“Manchester is particularly vulnerable to a decline in research income given its high share of the university’s total income and the strategic importance of research in maintaining the university’s global reputation and appeal,” wrote Moody’s. “Maintaining the negative outlook reflects that we expect these revenue and cost pressures to continue amid a slower growth environment in the UK.”
A University of Manchester spokesman said: “This downgrade will not affect the day to day operations of the university which is still judged to be a very low credit risk and puts us on a par with many of our peer universities.”
Moody’s carried out a mass ratings reassessment after the UK’s Aa2 sovereign bond rating was changed from stable to negative on 8 November against the backdrop of political instability in the country. Moody’s also reconsidered ratings for other public institutions such as local authorities and housing associations.
The universities of Oxford and Cambridge were among institutions that had their creditworthiness changed from a stable to a negative outlook, meaning that the universities’ gold-plated Aaa ratings are at risk of being downgraded.
The agency said that while the Oxbridge universities were still two notches above the UK’s national rating, they were vulnerable to instability in the country and “the channels through which the government influences Oxford and Cambridge’s credit quality including policy determining tuition fees, immigration, teaching funding, research funding and priorities, and regulation”.
However, a spokesman for the University of Oxford said the negative outlook reflected national uncertainties “rather than the University’s own performance and position”, while a University of Cambridge spokesman said its high rating “reflects its extraordinarily strong market position”.
Five universities had their financial outlooks changed from stable back to negative, despite all having the rating reversed in May. De Montfort University, Keele University, the University of Leeds, the University of Liverpool and the University of Southampton were all given a negative outlook. Moody’s said it expected that the institutions “would be negatively impacted by a weakening macroeconomic climate through revenue streams such as research funding and donations”.
Cardiff University saw its negative outlook maintained and its Aa3 rating finalised, as Moody’s cited concerns over high staff costs, weak profitability and potential financial deficit for the 2019 financial year. The agency said the “twin pressures of growing costs and slower revenue growth” would continue to “negatively impact the university’s operating performance over the medium term”.
The Wellcome Trust funder’s rating remained stable because a substantial proportion of its cashflow comes from outside the UK.
Overall, Moody’s said UK universities could be vulnerable to social risks including the shrinking population of 18-year-olds until 2021-22, forcing universities to compete more fiercely for students, and decisions on government policy for tuition fees and immigration.
The universities mentioned in this article have been contacted for comment.