University credit gap ‘could widen’

Ratings agency Standard & Poor’s has predicted that the new higher education funding regime will harm the creditworthiness of some UK universities, widening the gap between the “strongest and weakest”.

June 25, 2013

However, the firm also says that it is confident the government would bail out a failed university, in a report titled “UK higher education reforms post university challenge”.

Credit ratings will be particularly important for any universities wishing to issue bonds, likely to be an increasingly popular source of finance for universities as public funding dries up and long-term borrowing from banks becomes more difficult.

A press release issued by Standard & Poor’s says the report finds that “the relaxation of controls on student numbers at UK universities could widen the gap in creditworthiness between the strongest and weakest universities”.

The report says that “funding reforms have increased universities’ exposure to another major change: the reform of student number controls. In broad terms, this reform has removed some of the restrictions on undergraduate enrolment, allowing universities more freedom to expand their student bases.

“As a consequence, we believe the creditworthiness of many universities will continue to be affected, both positively and negatively, by an environment that is now less stable and predictable.

“As the recent reforms continue to affect not only funding and student number controls, but also student preferences, the credit quality of universities will increasingly depend on how readily they can adapt to change.”

The report adds: “We believe that universities that fail to adapt effectively to the changing environment may see increasing volatility in their revenues, leading to a potential decline in credit quality.”

But it continues: “That said, in the event of impending financial failure, we generally believe there is a moderately high likelihood that the UK government, through the funding councils, would act so as to avoid a cash default, probably by brokering mergers or advancing grants where necessary.”

john.morgan@tsleducation.com

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