S&P Global Ratings improves UAB’s financial outlook even amid greater uncertainty in education

S&P Global Ratings improves UAB’s financial outlook even amid greater uncertainty in education

Finis St. John IV, chancellor of the University of Alabama System Board of Trustees. (contributed) A higher credit rating and outlook are overall indicators of UAB’s financial position and improve the institution’s ability to borrow money at a lower cost and to sell bonds, supporting investment in institutional priorities and strategic growth.

University of Alabama System Chancellor Finis St. John said the positive rating by S&P is good news for UAB and the University of Alabama System, but is also significant for Alabama. “We made hard decisions with UA System leadership in the early days of the pandemic to protect UAB and UAB Medicine’s financial stability,” Watts said. “As we moved to virtual instruction at the university and canceled elective procedures throughout the Health System to keep people safe, that resulted in furloughs, reductions in compensation, a hiring freeze and the suspension of institutional matches to 403(b) retirement plans, among other necessary cost-saving measures. While difficult, this allowed us to weather the pandemic.”

UAB President Ray Watts said while UAB’s lower, stable designation did not last long, it took expertise and discipline to remain financially strong while navigating the uncertainties faced by universities and academic medical centers during the pandemic. UAB President Dr. Ray Watts. (UAB)

In April 2020, in the midst of significant financial threats and uncertainties resulting from the pandemic, S&P widely lowered the outlook for colleges and universities, and UAB’s was downgraded from positive to stable. “With an annual economic impact well exceeding $7 billion, UAB’s positive S&P financial outlook is great news for the Birmingham region and our state as a whole,” St. John said. “UAB – known for its world-class education, research and patient care, and its unsurpassed expertise in public health and infectious disease – has been critical to the UA System’s successful navigation of the COVID-19 pandemic, so it stands to reason that S&P would recognize the institution’s strong performance and resiliency.”

Many factors contributed to the improvement in S&P’s outlook for UAB. The following excerpts from S&P’s report describe the justification of the upgrade in UAB’s outlook: S&P cited UAB’s management and governance as “key credit strengths, in part due to oversight provided by the University of Alabama System. Dr. Ray L. Watts, formerly UAB’s senior vice president and dean of the School of Medicine, became UAB’s seventh president in February 2013 and has been instrumental in propelling the university’s increasingly favorable reputation.”

Role as the premier medical and health sciences university in Alabama, with a nationally recognized academic medical center, that enjoys favorable enrollment and patient utilization.
Very healthy financial results on a full-accrual basis for each of the past five fiscal years, also expected for fiscal 2021.
Diverse revenue stream that is not tuition-dependent since health care operations account for approximately 49.6% of adjusted operating revenue in fiscal 2020, and research 11.4%.
Superior available resources as of fiscal year-end 2020, with unrestricted net assets at 60.8% of adjusted operating expenses and 232.2% of outstanding debt.
Low 1.1% pro forma debt burden based on maximum annual debt service of $47 million in fiscal 2021 that excludes hospital-related debt since that debt is separately secured and rated.
Robust management and governance that is fiscally conservative in its budgeting, financial operations and investment management practices. In its report, S&P recognized UAB’s: UAB’s headcount grew 15.5% to 22,563 in fall 2020 from 19,535 five years earlier. Over the same period, total FTE (full-time equivalent) enrollment increased 16.3% to 18,472 in fall 2020 from 15,871 in fall 2016.
Undergraduate FTE enrollment increased by 1.3% in fall 2020 to 11,998 compared to the fall 2019 enrollment of 11,841 – rather remarkable, in our view, given the pandemic’s depressing effect on most college and universities fall 2020 enrollment.
Graduate FTE enrollment increased by 5.8% in fall 2020 to 5,302. The professional FTE enrollment has generally grown about 1% to 2% per year and rose 0.4% to 1,172 in fall 2020 from the prior year’s fall enrollment … freshman applications increased by 20.5% to 10,391 for fall 2020 from 8,623 in the prior year.
UAB’s balance sheet in our view is another of its key credit strengths with healthy growth in cash and investments and net property plant and equipment over the several years while long-term debt has increased only modestly.

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