(Bloomberg) -- A college in Pasadena, California, founded in 1930, is in danger of having its credit rating downgraded.
Moody’s Ratings revised the outlook for the ArtCenter College of Design to negative from stable, citing “thinning” operating performance, higher expenses and a heavy reliance on international students, according to a release Monday. The school has $128 million of debt outstanding, and is rated Baa1, three steps above junk.
The revision highlights the challenging landscape facing many small higher education institutions, including art colleges. Last month, the University of the Arts, a private college in Philadelphia, filed bankruptcy after abruptly closing in June, and in April, the struggling Vermont College of Fine Arts struck a deal to partner with the California Institute of the Arts.
Moody’s analysts led by Debra Roane said in the release the ArtCenter College of Design has higher financial leverage than its “peers contributing to low debt affordability” and weaker operating performance is expected to continue. The analysts also said the school has new exposure to higher costs through a collective bargaining agreement after the faculty unionized in 2022. Additionally, the college’s “high reliance on international students exposes the college to policy volatility.”
Despite those risks, Roane said the school benefits from “good brand” and a slew of specialized, niche programs like automotive design and transportation design, as well as stable liquidity with 273 days cash on hand for fiscal year 2023.
Unlike many small colleges, ArtCenter College of Design has seen enrollment trending upward over the last several years. It enrolled a total of 2,420 students in the fall of 2022, up about 8% from five years prior, according to data from the National Center for Education Statistics.
“We are mindful of the headwinds facing all higher education institutions across the nation and are determined to position ArtCenter for success now and into the future,” Karen Hofmann, the school’s president, said in an email statement, adding that the college has a new leadership team and is working to diversify revenue sources.
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