January 27, 2009
Charities Feel the Credit Crunch
By Debra E. Blum
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 that tracked bond ratings in 2008 for 742 nonprofit borrowers, ratings were relatively stable last year over all, with only 6 percent of the groups seeing their ratings changed. 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 have to pay when they borrow money or issue bonds. Those with a higher rating pay less interest.
Most of the nonprofit organizations Moody’s rates are higher-education institutions, though the company does rate other types of groups, like independent schools and museums.
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.
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.
A second report, which focuses almost entirely on the financial outlook for higher-education institutions, says that all nonprofit organizations are likely to face similar pressures from investment losses and weaker fund raising. It says, too, that organizations that compete directly with other entertainment choices, like museums, might face extra challenges.
“There may be additional pressure on the revenue stream at cultural institutions, which rely on attendance and membership,” says Kimberly S. Tuby, a Moody’s assistant vice president.
The reports: “2008 Higher Education and Not-for-Profit Year-End Review” and “U.S. Higher Education Outlook” are available from Moody’s to Moody’s subscribers.
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