‘Significant dysfunction’ triggers ratings downgrades for NIC

Moody’s Investor Service has downgraded North Idaho College’s issuer and bond ratings, actions that affect $7.9 million in rated debt.

“The downgrade of North Idaho College’s issuer rating to A3 from A1 reflects a continuing period of significant governance and management dysfunction,” Moody’s said in a news release Thursday.

The revenue bond rating has been downgraded to A3 from A2.

A bond rating is a grade given to bonds that indicate their credit quality. Independent rating services like Moody’s provide evaluations of a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion.

Sarah Garcia, NIC’s Vice President of Business and Finance, said Friday that the downgrade doesn’t impact the college’s financial strength.

“NIC does not carry any debt other than our bond issued by the Dormitory Housing Commission,” said Laura Rumpler, NIC’s chief communications officer. “We have no capital plans that would require us to go out for a bond.”

Moody’s placed NIC’s bond ratings under review for downgrade in December 2022, citing ongoing dysfunction on the board of trustees that resulted in another warning letter from NIC’s accrediting organization.

That warning escalated to a show cause sanction last week. NIC has until March 31 to submit a report to the Northwest Commission on Colleges and Universities explaining why its accreditation should not be terminated.

“Prolonged and public disputes among the board and the college, as well as the local community, have resulted in turnover in the office of the president and legal counsel, litigation, delayed audits and most notably, possible loss of accreditation,” Moody’s said.

Rumpler said the downgrade was expected in the wake of the show cause sanction.

In December 2021, Moody’s revised the college’s rating outlook to negative while affirming its A1 issuer and A1 revenue bond ratings.

Factors that could lead to an upgrade of the ratings include:

• An established period of stabilization at the governance and management level with restoration of management credibility and improved risk management, evidenced by predictable board actions, policies, and procedures
• Strengthening of the student market evidenced by growth in enrollment
• Material increases in operating margins and reserves

Factors that could lead to a downgrade of the ratings:

• Loss of accreditation would lead to material credit deterioration
• Inability to stabilize governance and management with continued uncertainty regarding board actions, policies and procedures
• Evidence of further deterioration of brand and strategic position through enrollment losses or further weakening of financial policy and strategy reflected in operating performance deterioration.

“Despite management dysfunction, through fiscal 2022, the college reported good operating performance, increased cash reserves and low debt,” Moody’s said.

The college also benefits from diverse revenue streams, Moody’s noted, including property taxes, state aid, tuition and fees.