NIC hit with another ratings downgrade

COEUR d’ALENE — Moody’s Investor Service has again downgraded North Idaho College’s issuer and revenue bond ratings, an action that affects about $8.4 million in rated debt.

NIC’s rating outlook remains negative.

“The downgrade of NIC’s issuer rating to Baa1 from A3 reflects a prolonged and continuing period of significant governance dysfunction,” Moody’s said in a news release Wednesday. “Over the past two years, public disputes among the board, college leadership and the local community have resulted in turnover in the office of the president and legal counsel, litigation, delayed audits and the real possibility of loss of accreditation in early 2025.”

This is the second time in as many years that NIC faced a downgrade. In February 2023, Moody’s downgraded North Idaho College’s issuer rating to A3 from A1 and its revenue bond rating to A3 from A2.

Moody’s cited “governance considerations ... policies and procedures risk, deteriorating management credibility and track record and heightened risk appetite” as key factors behind the rating action.

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. NIC carries no debt other than a bond issued by the Dormitory Housing Commission.

Moody’s said the Baa1 issuer rating “reflects NIC’s important regional role as a public provider of two-year education” in North Idaho.

“Despite management dysfunction, through fiscal 2023, the college maintains good operating performance, with annual surpluses growing financial reserves and providing good coverage of the college's low debt burden,” Moody’s said. “NIC continues to benefit from diverse revenue streams, including property taxes, state aid and student charges.”

Fiscal year 2024 is expected to result in another modest surplus, Moody’s said in a news release. But a period of declining enrollment and net tuition revenue presents a long-term challenge.

The loss of accreditation from the Northwest Commission of Colleges and Universities would result in a multi-notch downward rating action.

NIC’s accreditor initially sanctioned the college with a warning April 1, 2022. The college has operated under a show cause sanction, the last step before loss of accreditation, since February 2023.

Federal regulations stipulate that the issues underlying the initial sanction must be resolved within three years of its issuance. For NIC, that date is April 1, 2025.

If NIC does not demonstrate significant progress toward resolving the problems outlined by the commission “well before” April 1 of next year, the commission must take adverse action, meaning denial, withdrawal, suspension or termination of accreditation.

“The negative outlook reflects uncertainty regarding the college’s accreditation and the potential for more material negative impact on enrollment and finances from management dysfunction,” Moody’s said.

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

• A prolonged 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 demand evidenced by sustained growth in enrollment and net tuition revenue

• Material improvement in EBIDA margins that contribute to financial reserve growth through retained operating surpluses

Factors that could lead to a downgrade of the ratings:

• Loss of accreditation would lead to material credit deterioration, potentially of multiple notches

• 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, with EBIDA margins below 10%