University finances ‘robust’ but threatened by COVID-19: S&P Global
International credit rating agency S&P Global Ratings has maintained the University of Wollongong’s (UOW) AA credit rating, but has revised its outlook from stable to negative due to the impact of the COVID-19 pandemic and warned management to act quickly to retain its standing.
The AA/A-1+ credit rating, announced by S&P on Wednesday 10 June, is based on UOW’s “very strong” enterprise and financial profiles.
The S&P report said, “UOW entered the pandemic with a solid market position, high level of available resources, and relatively low debt-servicing needs”.
While S&P expects UOW’s overall finances to remain “relatively robust” in 2020 and future years, it notes that, “the COVID-19 pandemic and associated travel restrictions will cause a sharp drop in enrolments of onshore international students at UOW, significantly affecting revenue”.
The change in outlook from stable to negative reflects S&P’s view that UOW’s finances could deteriorate during the next two years if it is unable to achieve adequate savings to mitigate the revenue loss caused by a decline in onshore international student enrolments.
Inaction risks credit rating decline
While UOW’s AA credit rating remains unchanged, S&P warned it could be lowered in coming years should the drop in enrolments and corresponding response from university management materially weaken UOW’s financial profile.
However, if UOW is able to manage the effects of COVID-19 without a material deterioration in its financial metrics and if the current lockdown and border closures are unwound in such a way that enrolments gradually normalise, then the ratings agency said it could revise its outlook to stable.
UOW Chief Operating Officer Mr Damien Israel said the AA rating was a welcome but also highlighted the risks to the University’s financial footing during this period of global economic uncertainty.
“S&P’s affirmation of UOW’s AA credit rating is an endorsement of the University’s financial management and a show of confidence in our ability to recognise and meet the financial challenges we are now faced with,” Mr Israel said.
“S&P’s outlook warning adds to the case for immediate action to be taken by UOW to restore the Institution to a financially sustainable position.”
UOW has held an S&P rating since 2006, and during this time has consistently maintained an AA/A-1+ rating. The annual rating assesses all of UOW’s entities, including UOW Global Enterprises which operates the offshore campuses of UOW Dubai, UOW Malaysia KDU and UOW College Hong Kong.
An organisation’s credit rating affects its ability to borrow money and the interest it pays on its debts.