S&P Global Ratings improves UAB’s financial outlook even amid higher ed uncertainty

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.
S&P Media contact: Ken Rodgers
UAB Media contact: Alicia Rohan

S&P Global Ratings has revised its outlookShot from pedestrian bridge, view of University Boulevard at night showing campus buildings on either side of the street and in the background, May 2020.Photography: Steve Wood for the University of Alabama at Birmingham bond rating from stable to positive and affirmed its ‘AA’ long-term rating on general revenue bonds issued by the Board of Trustees of the University of Alabama System for UAB, citing increases in enrollment and employment, as well as UAB’s strategic plan, Forging the Future, and the institution’s ability to safely navigate the COVID-19 pandemic.

According to S&P, “The revised positive outlook and rating reflect UAB’s favorable performance through the global pandemic to date with an increasing enrollment trend, healthy financial operating performance, ample available resources for the rating and a low debt burden.” 

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 says this positive rating by S&P is good news for UAB and the University of Alabama System, but is also significant and impactful for Alabama.  

“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.”

In April 2020, in the midst of significant financial threats and uncertainties resulting from the COVID-19 pandemic, S&P widely lowered the outlook for colleges and universities, and UAB’s was downgraded from positive to stable.  

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

“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.” 

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.” 

Many factors contributed to the raise in S&P’s outlook for UAB. The following excerpts of S&P’s report describe the justification of the upgrade in UAB’s outlook:  

  • UAB’s total headcount grew 15.5% to 22,563 in fall 2020 from the 19,535 headcount recorded five years earlier in fall 2016. Over the same period, total FTE 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 also 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.

In its report, S&P recognized UAB’s:

  • 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 (UNA) 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 (MADS) of $47.0 million in fiscal 2021 that excludes hospital-related debt since that debt is separately secured and rated; and
  • Robust management and governance that is fiscally conservative in its budgeting, financial operations and investment management practices.

UAB Senior Vice President for Finance and Administration Allen Bolton says a positive outlook is always significant, but this outlook is particularly significant given the timing and S&P Global Rating’s overall outlook for higher education.

According to Inside Higher Ed, only 3.2 percent of S&P-rated colleges and universities had been assigned positive outlooks at the end of 2019. All of those outlooks, including UAB’s, were revised to stable in early 2020 due to the pandemic’s effect on higher education. 

“In early 2021, S&P Global Ratings kept in place its negative outlook on the U.S. not-for-profit higher education sector for the fourth straight year,” Bolton said. “This highlights the significance of UAB’s strength in our ability to overcome external factors and move back from stable to positive in less than a year. We are aware of only one other institution of higher education with a positive outlook at this time.” 

Watts says the responsibility and celebration for this good news are shared among the entire UAB community.

“When receiving this type of good news from S&P, we always highlight the hard work of the UAB Finance and Administration team and the incredible support and expertise we receive from the UA System Office and Board of Trustees,” Watts said. “But this year, we also recognize the sacrifices made by our students, faculty and staff that helped make this possible. From students who made safety a priority so we could keep the campus open this academic year, to employees who served our mission in new and innovative ways through remote, hybrid and on-site work, to front-line health care heroes who provided world-class comfort and care to patients under exhausting and heartbreaking circumstances, we are all responsible for and benefit from this news.”

Watts also recognized the importance of state and federal relief funds to UAB’s ability to survive and thrive in the midst of the unprecedented challenges of the COVID pandemic.  

“The public funds we received helped us maintain our critical missions in education, research, patient care and community service throughout the pandemic,” Watts said. “We take our responsibility to be judicious with public support seriously, and I am proud we were able to use these funds effectively and efficiently to maintain the services they were intended to support.”