Rating Update: Moody's downgrades College of New Rochelle's (NY) bonds to Ba1
from Baa3; outlook is negative
Global Credit Research - 23 Jan 2013
Rating action impacts $58.5 million of rated debt

DORMITORY AUTHORITY OF THE STATE OF NEW YORK
Private Colleges & Universities
NY
Opinion

NEW YORK, January 23, 2013 --Moody's Investors Service has downgraded the College of New Rochelle's (CNR)
rating to Ba1 from Baa3 on the Series 1999 and 2008 bonds. The rating outlook is negative.
SUMMARY RATING RATIONALE
The downgrade of the College of New Rochelle's rating to Ba1 with a negative outlook is based on persistent
enrollment declines and a challenged student market position, steep enrollment decline in fall 2012, weakening
operating performance and thin debt service coverage. The rating also incorporates the college's high leverage,
extremely thin unrestricted liquidity, insufficient liquidity to cover its variable rate demand debt, heavy use of
operating lines and a modest balance sheet. Given the significant challenges faced by the college, the Ba1 rating is
based our expectation that the college's relatively new president and leadership team will stabilize enrollment and
improve the college's frail financial position longer term.
CHALLENGES
*Very low unrestricted monthly liquidity of $12.7 million providing just 25.6% coverage of demand debt and just 78
monthly days of cash on hand. Excluding $10.5 million of operating lines, monthly liquidity would be only $2.2
million.
*Debt structure risks, particularly in light of thin liquidity, with a high amount of variable rate demand debt (before
swaps), a letter of credit (LOC) that contains financial covenants and exposes the college to remarketing and
liquidity facility renewal risk. The LOC expires on August 6, 2013 and inability to secure a liquidity facility or a failed
remarketing could result in a more rapid deterioration of CNR's credit profile.
*Steep enrollment declines evidenced by a 21% decline in full-time equivalent (FTE) enrollment from fall 2008 to
3,649 FTE students in fall 2012. The 5.5% total enrollment decline in fall 2012 from the prior fall was concentrated
in the college's adult education and workforce learning school, which constitutes the college's largest school by
credit hours and revenue.
*High dependence on student charges (88% in FY 2012), coupled with significant reliance on state and federal
student aid programs, which are increasingly vulnerable to cuts and changes in eligibility requirements.
*Pressure on net tuition revenue and growing expenses have led to weaker operating performance and debt
service coverage. In FY 2012, the operating cash flow margin was thin at 4.7%, leading to just 0.66 times debt
service coverage in FY 2012.
*Low expendable financial resource coverage of debt and operations. Expendable financial resources of $17.0
million in FY 2012 provided thin coverage to debt and operations of 0.25 times and 0.28 times, respectively.
STRENGTHS
*Continued growth in net tuition per student. While net tuition per student is modest, it has grown 42% over the
past five years to $12,062 in FY 2012 from FY 2008. Management projects another year of growth in FY 2013
based on current enrollment.

 *Implementation of a strategic plan by a relatively new senior leadership team, recent realignment of enrollment
and student services departments, and addition of new resources to rebuild enrollment across the college and
increase fundraising.
*Flexible expense base allows the college to adapt to changing economic and student market conditions, as most
of the faculty in the School of New Resources (the college's largest school) and the Graduate School hold adjunct
appointments, which allows for expansion and contraction of faculty.
*No additional near-term borrowing plans.
DETAILED CREDIT DISCUSSION
LEGAL SECURITY: The Series 1999 bonds (issued through the New Rochelle Industrial Development Agency) are
secured by a pledge of tuition revenues, a debt service reserve fund, and a negative mortgage pledge. The Series
1999 bonds also benefit from a rate covenant and an additional bonds test. The Series 2008 bonds (issued
through the Dormitory Authority of the State of New York) are secured by a pledge of tuition revenues, a first
mortgage on the college's Wellness Center and Angela Merici Hall properties, and a collateral assignment of all
leases of the land and buildings related to the two properties and all rents received as a result of the leases related
to the Series 1995 and 1997 bond issues, which were refunded by the Series 2008 bonds. The Series 2008 bonds
do not have a debt service reserve fund.
DEBT STRUCTURE: The college has $85.3 million of comprehensive debt, including $16.3 million in operating
leases (our operating lease calculation captures the implicit borrowing costs if the college were to capitalize its
operating leases by a multiplier of 6%). The $69.0 million of direct debt includes approximately 72% variable rate
demand debt (before swaps) which is comprised of $39.0 million of Series 2008 variable rate demand bonds and a
total of $10.5 million drawn on two operating lines.
The Series 2008 variable rate demand bonds are supported by a letter of credit (LOC) from RBS Citizens, N.A.
(rated A3/P-2). Under the term-out provisions for draws on the LOC as the result of a failed remarketing, the
college would be required to repay the bank at the expiration date of the LOC, which is August 6, 2013. Therefore,
the risk to bondholders increases as the expiration date approaches. Acceleration of debt would lead to a more
rapid deterioration of the rating.
Events of default under the reimbursement agreement could require the college to post the full amount of the LOC
with the bank or result in acceleration of the bonds, requiring immediate repayment to the bank. The events of
default include maintaining a debt service coverage ratio of at least 1.1 times and an additional bonds test. The
additional bonds test requires that maximum annual debt service, including the proposed debt, does not exceed
15% of total revenues of the college in the most recent fiscal year. In FY 2012, the college's debt service coverage
was in excess of the requirement at 1.2 times, weaker than the 1.5 times in FY 2011. Sensitivity analyses show
that a decline of approximately $3.4 million in operating income plus non-cash expenses would have tripped the
debt service coverage ratio covenant in FY 2012 and debt service remains relatively level through 2038. At this
time, the college does not have the liquidity to cover the full amount of the LOC should there be an acceleration of
the debt or inability to obtain a new LOC. The college may, at least 90 days but not more than 180 days prior to the
August 6, 2013 expiration date request the bank to extend the expiration date.
DEBT-RELATED INTEREST RATE DERIVATIVES: CNR currently has one swap agreement with RBS Citizens,
N.A. (rated A3/P-2) to manage the interest rate risk on the Series 2008 bonds through maturity in 2018. The current
notional amount is $39.1 million. The college pays a fixed rate of 3.527% and receives SIFMA. The college may
terminate the agreement with five business days notice to the bank at market value. There is no requirement for
the college to post collateral. An event of default includes a cross-default provision on any indebtedness that is
more than $10.0 million. As of December 31, 2012, the market value of the swap was a liability of $5.7 million to the
college.
RECENT DEVELOPMENTS/RESULTS:
MARKET POSITION: The college's market position remains pressured given the highly competitive market and
unique market draw, limited geographic diversity of students and larger macro issues facing small private tuition
dependent universities. CNR is a small Catholic college made up of four schools: a women's college of arts and
sciences, co-educational nursing school, graduate school and a school geared to adult learners and workforce
education called the School of New Resources (SNR) with total FTE enrollment of 3,649 students in fall 2012. The
traditional undergraduate schools and the graduate school are located in Westchester County, New York in the city
for which it is named, New Rochelle, and SNR has locations in leased buildings across the five boroughs in New
York City. The majority of students are from New York.

 York City. The majority of students are from New York.
Enrollment declines remain a significant credit challenge. In fall 2012, overall FTE enrollment declined 5.5% driven
largely by SNR, which comprises approximately 70% of total FTE students. The women's college, nursing school
and graduate school had either growing or flat enrollment compared to fall 2011, which is a shift from prior years
when the women's college and graduate school experienced year-over-year enrollment declines. Weak retention
rates contribute to the college's struggle to stabilize enrollment. First-to-second year retention of 52% in fall 2012,
was down from 54% across all schools in fall 2011. When excluding SNR students, the traditional undergraduate
retention rate improves to roughly 70%, but remains weak.
Management is in the process of implementing initiatives at each school to strengthen demand. For the traditional
undergraduate program, management is emphasizing living and learning communities, adding to its honors
college, partnering with nearby colleges to co-share programs, improving messaging and awareness of its athletic
programs and leveraging its Ursuline identity both domestically and abroad. The college also is adding new
graduate programs in established areas of programmatic strength, such as nursing and other health-related
disciplines. For SNR, the college has begun administering a GED test preparation program, which could increase
demand by creating a pipeline of students. In addition, the college has added internship programs to draw
students. While the management team is addressing many of the enrollment and market challenges the college
faces, its market position and enrollment will likely remain pressured as it often takes years for new strategies to
show results or provide a meaningful impact.
Resolution of the federal budget debate could involve changes in eligibility or reductions to federal student aid,
including Pell Grants, impacting the college's enrollment and revenue given the relatively high reliance on this
program. The college serves a high portion of low income and first generation college students, with approximately
85-88% of students eligible for Pell Grants and approximately 75-80% of students eligible for TAP. For FY 2012,
financial aid grants from these programs totaled $21.0 million, a decline from $24.6 million in FY 2011. As reported
by the Department of Education, in FY 2010 (most recent data available), the college's student loan two-year
cohort default rate was 12%, above the 9.1% average for higher education institutions. Schools with official cohort
default rates of 25% or greater are subject to loss of certain federal financial aid grants.
OPERATING PERFORMANCE: In FY 2012, CNR's operating performance weakened for the third consecutive
year, declining to a negative 4.2% operating margin, as calculated by Moody's, from negative 1.8% the prior year. In
addition to our standard operating margin calculation that assumes a 5% endowment spend rate and includes
depreciation as an operating expense, we excluded a $2 million gift in the form of art work from operating revenue,
while unrestricted revenue in the audit, is not available for operations unless monetized. This adjustment is
consistent for unrestricted gifts that are not in cash or pledges. Cash flow margin narrowed to a thin 4.7%, leading
to just 0.66 times debt service coverage as calculated by Moody's. The college made all debt service payments
on-time and in full, which we expect to continue at the current rating, and exceeded its debt service coverage
covenant, which includes all unrestricted revenue. Driving the trend of weakened operating performance has been
stagnant net tuition revenue, given declining enrollment and the college's high dependence on that revenue source,
and increased expenses. Student tuition and auxiliaries remain around 90% of Moody's adjusted operating
revenue.
For FY 2013, management is projecting a stronger year compared to FY 2012 as current expenses are below
budget and net tuition revenue is projected to slightly grow. In addition, revenue will be augmented by $500,000
from net proceeds of selling the former president's house and receipts of $1.25 million in unplanned unrestricted
gifts in December. As highlighted in prior reports, the college has a flexible cost structure relative to other higher
education institutions in our portfolio because of its higher reliance on adjunct professors and operating leases to
administer the programs for SNR. Nevertheless, educational expenses per student have risen each year since FY
2005 (fall 2004 enrollment) to $14,311 in FY 2012 from $8,672 despite declining enrollment. Even if enrollment at
the higher level of 5,967 FTEs in fall 2004 against FY 2012 expenses, educational expenses per student would be
$10,347. Management has trimmed some expenses for FY 2013, mainly through renegotiation of vendor contracts,
but projects expense growth from FY 2012. Total expenses in FY 2012 were at a high of $61.7 million,
demonstrating investment in initiatives to bolster enrollment despite reductions in other areas. We note, some
investment in academic programs will be supplemented with grants from foundations and corporations as the
college has had success in garnering support for specific initiatives. The college's ability to generate surpluses to
boost liquid reserves would be credit positive.
Conservative budgeting practices, including budgeting for debt service, contingencies and deferred maintenance,
as well as maintaining a 5% spend rate have protected the college from generating even thinner margins or deeper
deficits given the prolonged enrollment declines and high dependence on student charges. In prior years, the
college's ability to generate at least breakeven operating performance and adequate debt service coverage had

 college's ability to generate at least breakeven operating performance and adequate debt service coverage had
provided some credit strength to maintain its rating despite high leverage and debt structure risks. However, given
the negative trends and the college's other credit challenges, the downturn in operating ratios and debt service
coverage have increased its credit risk profile.
BALANCE SHEET POSITION: We expect the college's financial resources will remain modest given its limited
ability to generate large operating surpluses and moderate fundraising capabilities, but that the balance sheet
cushion to debt and operations, at 0.25 times and 0.28 times in FY 2012, respectively, will remain sufficient.
The college is in the planning phases of its next campaign, which is following its prior $50 million campaign that
was completed in 2009 when the college surpassed its goal. The college has already seen initial success in
fundraising results in FYs 2012 and halfway through FY 2013. In FY 2012, the college raised $6.7 million in gifts
from private donors, foundations and corporations. Significant gifts in FY 2012 included an Ansell Adams collection
set valued at $2 million and an unrestricted $1 million pledge to be paid over 4 years. The college's focus is to raise
funds for scholarships given the potential negative impact that reductions in Pell could have on the college and to
enhance the college's enrollment and market position. In FY 2013, the college has booked more than $1.25 million
in gifts, driven by a single $1 million gift from an alumna's estate. Average annual gift revenue from FY 2010-2012
was $3.9 million, below the FY 2011 median of $5.4 million for Baa-rated private universities.
As of June 30, 2012, the college's investment portfolio of $23.3 million produced a 2% positive return with an asset
allocation of publicly traded domestic equities (45%) and international equities (17%), fixed income (26%), cash
(7%) and real estate (5%).
Moody's expects CNR's cash position to remain constrained. Its monthly liquidity of $12.7 million which includes
$10.5 million from two fully drawn lines of credit equates to a weak 78 monthly days cash on hand as of June 30,
2012. The college relies on these lines of credit to meet cash flow shortfalls in part caused by lagging payments
from TAP. Banks providing operating lines to the college include Sovereign Bank (rated Baa1/stable, P-2) and JP
Morgan Chase Bank, NA (rated Aa3/stable, P-1). The college reports no near-term borrowing plans or spend down
of resources for capital projects.
MANAGEMENT AND GOVERNANCE: Following a year-long transition period shadowing the former long-tenured
president, the college's current president was inaugurated on July 1, 2012 after serving more than a decade as the
college's vice president for financial affairs. The president along with six major administrative officers at the vice
president level comprise the key administrators at the college with the president reporting directly to the board of
trustees. The president has spent much of her first year engaging in strategic planning with the board, the senior
leadership team and the college community to formulate a new strategic plan that will guide the college over the
next several years. Recognizing the enrollment and revenue pressures, the college has already added new senior
level positions during the president's transition period to focus on retention, new program development and
institutional giving. However, to maintain the current rating, we expect that the board and senior management team
will effectuate measurable improvement of the college's financial operations, liquidity, balance sheet, and
enrollment.
In June 2012, the college received full re-accreditation for the maximum of 10 years from its accrediting body, The
Middle States Commission on Higher Education, compiling with all 14 standards. The main recommendation from
the commission was to improve its strategic planning process, which the college is in the process of fulfilling under
the board and leadership of the new president.
The college's board of trustees is composed of 24 members, including the president and include alumnae and
individuals having affiliations or professional careers in the private and public sectors, higher education and clergy
(the college was founded by the Ursuline Sisters, but has no membership requirements).
OUTLOOK
The negative outlook reflects our expectations that the college will continue to face a highly competitive student
market and challenging market position, as well as continued reliance on bank lines and thin liquidity that could
pressure the rating in the next 12-18 months should enrollment continue to decline or cash flow and debt service
coverage or liquid resources weaken. The negative outlook also reflects debt structure risks, including renewal or
replacement of the letter of credit expiring on August 6, 2013 and incorporates the uncertainty about the impact of
federal budget negotiations on federal funding given the college's high reliance on federal financial aid.
WHAT COULD CHANGE THE RATING UP

 Unlikely given the negative outlook. Any upgrade would be driven by substantial growth in unrestricted liquidity and
financial resources; stabilization of enrollment; improved operating performance and stronger debt service
coverage; sufficient liquidity to fully cover variable rate demand debt
WHAT COULD CHANGE THE RATING DOWN
Inability to renew or replace letter of credit or more onerous covenants in bank documents; violation of covenants
or acceleration of debt; inability to stabilize enrollment or right size the expense commensurate with enrollment
declines; declines in net tuition per student; weakening of operating performance or cash flow and debt service
coverage; erosion or encumbrance of financial resources unrestricted liquidity; additional debt issuance without
commensurate growth in financial resources
KEY INDICATORS (FY 2012 financial data, fall 2012 enrollment data)
Full-Time Equivalent Enrollment: 3,649 students
Primary Selectivity: 37.0%
Primary Matriculation: 25.7%
Net Tuition per Student: $12,063
Educational Expenses per Student: $14,311
Average Gifts per Student $1,063
Total Cash and Investments: $23.7 million
Total Direct Debt: $69.0 million
Comprehensive Debt*: $85.3 million
Expendable Financial Resources to Direct Debt: 0.25 times
Expendable Financial Resources to Comprehensive Debt: 0.20 times
Expendable Financial Resources to Operations: 0.28 times
Monthly Days Cash on Hand: 78.0 days
Monthly Liquidity to Demand Debt: 25.6%
Operating Revenue: $61.2 million
Operating Cash Flow Margin: 4.7%
Three-Year Average Debt Service Coverage: 1.09 times
Reliance on Tuition and Auxiliaries Revenue (% of Moody's Adjusted Operating Revenue): 88.3%
* Comprehensive Debt includes direct debt and operating leases.
RATED DEBT:
New Rochelle Industrial Development Authority Series 1999: Ba1
Dormitory Authority of the State of New York Series 2008: Ba1; enhanced rating of A3/VMIG2 based on letter of
credit from RBS Citizens Bank, N.A. (rated A3/P-2) (LOC expires August 6, 2013)
CONTACTS
College: Keith Borge, Vice President for Financial Affairs, 914-654-5552
PRINCIPAL RATING METHODOLOGY
The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published
in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

 in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of
debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with
Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory
disclosures in relation to the rating action on the support provider and in relation to each particular rating action for
securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this
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Analysts

Erin V. Ortiz
Lead Analyst
Public Finance Group
Moody's Investors Service
Edith Behr
Additional Contact
Public Finance Group
Moody's Investors Service
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